It’s not uncommon for elderly people to face financial challenges. That’s why it’s extremely important that you leave yourself with enough money to enjoy your Golden Years. As you get older, you need to take steps to ensure that you can afford to keep up with a higher cost of living on a fixed income.

One of the biggest mistakes that people can make is to borrow from their 401(k) plan without considering the implications for their future financial security. Aon Hewitt, a major consulting firm, reports that approximately 26 percent of participants in 401(k) plans currently have outstanding loans on their retirement plans. Moreover, the main reason that a person takes out a loan on their 401(k) plan is typically to pay off outstanding debt, according to a study conducted by TIAA-CREF Financial Services.

Although many people who borrow from their 401(k) plans justify the loan by telling themselves that they are simply “borrowing from themselves,” the reality is that these loans can have serious consequences. For instance, the majority of Americans simply can’t afford to make an early withdrawal from their pensions and 401(k) plans. Fidelity Investments found that the average 401(k) balance is just $91,000, an amount that doesn’t even come close to covering retirement health care costs.

Additionally, the default interest rate on an early withdrawal from a 401(k) plan is generally set at one percent or two percent above the prime rate. So even if you pay back the loan quickly, the interest can still pose a problem.

For additional information, view the MarketWatch.com article, “Here’s What Happens When You Take Out a Loan on Your 401(k).”

 

If you find yourself dealing with unmanageable debt, an experienced bankruptcy and debt attorney can assist you. Joel R. Spivack is a skilled, knowledgeable bankruptcy lawyer who will help you explore your legal options. Contact Mr. Spivack anytime to schedule a free consultation.