SURVEY SAYS: Dipping into Retirement Savings

April 1, 2013 – Last week, I asked NewsDash readers if they have dipped into their retirement savings accounts.

The majority (64%) of responding readers said they have not taken a loan or withdrawal from their retirement savings accounts. Sixteen percent said they have done so for essential/emergency reasons; 14% have done so for non-essential/non-emergency reasons; and 6% have done so for both reasons.  

In verbatim comments, while it was noted that the ability to access the money when needed helps employees not be afraid to save, many readers expressed strong opposition to taking from retirement savings for any reason. While a couple of readers expressed regret about taking money from their retirement accounts, a few noted how it was a good decision for them in the long-run. If anyone has come across—or done—an analysis of how taking a loan affects an account balance over 20 years, one reader—and I—would like to see it.  

Editor’s Choice goes to the reader who said: “Over the course of my 40+ year career I have dipped into my retirement savings several times. Mainly for expenditures associated with my kids (e.g., college, cars, etc.). Now that I am about to retire, I am contacting my kids to see which one will be taking me in.”


Down payment on a new home and pay off credit card debt.  


I've talked to more than one participant who took out a loan to 'save their house' or pay off some debt only to eventually lose the house to foreclosure or have to enter bankruptcy anyway. One of the biggest bonuses, but least discussed among average people, is the protection from creditors offered by ERISA for retirement assets.  


Used it for a down payment on a home purchase  


Don't see what the big deal is. I took a loan, I paid it back. If you had told me upfront I wouldn't be able to do that, I wouldn't have put as much money in an account I couldn't access for emergencies. Tell me how THAT would have been a good thing for my retirement security, since I would have missed out on employer match... Anytime you hear "I'm from the government, and I'm here to help"... grab your wallet (before they do).  


I would like to see a study of the effect of taking out loans over a 20 year period. It has to be detrimental.  


Not a good idea as balances never return to pre-withdrawal amount; even with loan repayment.  


My retirement (smaller) has been more like a savings, while my husband's is untouched. Used mine for remodel of house in prep for retirement.  


I chose the lesser of 2 evils. With no pay increase for the last 6 years, unfortunately, this was last resort. Had to pay for 1 last year of college rather than borrow and have to repay til I'm 75.  


Retirement savings is for retirement. It's not a bank account.  


I am a firm believer in leaving retirement savings intact; however, I am also a realist. Sometimes it can appear to be the only option because of unexpected job loss or devastating illness and I have seen these effects firsthand. If you will be living in the street and/or can't eat and take care of your family, you do what you have to do. I used to think that I didn't need to worry about accumulating enough money to retire because my job will probably do me in, until I realized that only the good die young......  


Only twice. After I left my first job, I took the money in cash---about $600. It was my employer's contribution. I often wonder how much I would have now had I not taken it then. The 2nd time was for the down payment on my first home. I took a hardship withdrawal. My mistake was taking more than I needed so taxes could be withheld. I ended up paying taxes and penalties on the amount withheld for taxes. As a new homeowner, I had lots of tax deductions and would have been able to pay the taxes that would have been due on the lesser amount.  


Not yet...God and the economy willing...not ever...well at least until I retire...which could be anytime in the next 9 to 900 years!  


When I was in my mid-20s, I got a check in the mail one day from a profit sharing plan I didn't even know I was in when working part-time during college. I used it to buy my first house. Of course that was back before the early distribution penalty came into place(yes, I'm that old!). Since then I've been socking away as much as I can into my 401(k) and haven't touched it. I figure that if I can't make ends meet now while I have an income, how can I expect to make ends meet in retirement unless I have a good nest egg.

Verbatim (cont.)  

Just say no!!!  


The study being referenced indicates that approximately 52% of those surveyed have not touched their retirement funds for other purposes. When you reference the study results in your survey question, you liken the 52% rate to "most". While 52% is more than half, I am not sure it is "most". Since we are in the midst of March Madness, let's apply this to basketball. If a baskeball player is shooting 52% from the foul line, do you believe there are many fans that believe the player makes "most" of his/her free throws?  


I believe that loans are too easy to take and seem to be many participants "go to" option for money, even if it is only for a vacation.  


Took a $49K loan from my 401K rather than a bank to help keep my small side business afloat in early 2012. If I hadn't taken the loan, I would have had to shut the doors and lay off 3 employees, so I considered that an essential hit to my 401K. Still, I hate to see that much out of my 401k. I worry about paying it back over the next several years, and if I did the right thing. Should I have taken a loan which could become a withdrawal with penalty if I fail to pay it all back, or if I should have taken a bank loan that would be subject to bankruptcy if the business doesn't make it? Only time will tell.  


Perhaps I'm just one of the lucky few who would never even have to consider doing this.  


Thank goodness we've never needed to, but our finances are more flexible since both my spouse and I have Defined Benefit Pensions coming - soon!  


A long time ago, when we bought a new house and needed furniture. Ended up having to pay it back all at once when I left the company.  


Retirement savings is for retirement! End of story! Period... unless, of course, one needs it currently to live on (loss of job, etc.), has an emergency, "needs" a new car, "needs" a vacation....  


Furnace was damaged in a flood, and needed replacing.  


I took a small loan once, to help my spouse pay tuition for a master's degree. The degree led to a higher salary and retirement savings, plus I never reduced my deferrals while paying back the loan, so I don't feel it had a negative long-term effect.

Verbatim (cont.)  

Having loan and hardship withdrawal features in a 401(k) plan is a mixed blessing...too handy for some folks, although most tend to leave it alone.  


If I had lost my job like so many others, I might well have taken a loan or withdrawn my savings.  


I think the ING survey is flawed in that the sample is too small and from respondents not wanting to admit using retirement funds for other purposes. Just look at how high loan usage is in plans that allow them.  


Took a 401k loan for a home down payment and for a child's college education.  


Have sufficient retirement funds so paid off a Parent Plus Loan for child's college as would like to start retirement debt free except for house payment. Withdrawal from traditional IRA was only bad part due to paying taxes on the large amount.  


Hardship withdrawals and loans serve as a cushion against the unknown, likely increasing the motivation to defer more.  


changing jobs  


#$@X No. I am 100% against taking loans and withdrawals from retirement savings accounts. Anyone who plans to retire should consider that money they withdrawal from their retirement account today is money they do not have at retirement. I live within my means and stick to a budget. I would love to vaation in Ireland or Italy but not at the cost of not having money set aside to cover my known expenses not to mention the unexpected ones.  


Borrowed money from my 401k to pay college expenses. Paid it back early and continued to contribute at the same time. I like options and early retirement is one I want on the table.  


Have not taken loans or withdrawals. I thought i could bank my pension but find that we have to use it for living expenses unfortunately.

Verbatim (cont.)  

I have a regular savings account to handle unexpected expenses or emergencies. We allow loans from our 401-k plan and too many people use it as a piggy bank and undermine their future retirement.  


Over the course of my 40+ year career I have dipped into my retirement savings several times. Mainly for expenditures associated with my kids (e.g., college, cars, etc.). Now that I am about to retire I am contacting my kids to see which one will be taking me in.  


Having to pay the mortgage after your husband is fired and has to fight for 3 months to get unemployment--that's a valid reason....  


Bad idea all the way around.  


took out a loan while building a house. The term of the loan was 4 years and paid off after two years.  


Even though you pay yourself principal and interest on the repayment of the loan, you lose market appreciation on that money. FYI - roughly half the participants in our plan have loans.  


Never touch retirement matter what, pay yourself first, then worry about your expenses.  


Downpayment on my first house.  


I withdrew my 401(k) in my 20s to pay for graduate school. I have used a loan from my 401(k) to avoid taking a commercial loan (i.e. car loan).  


I don't think its a good idea but sometimes it is necessary. I have no insurance and I sometimes have large medical bills - but I took a loan not a hardship.

Verbatim (cont.)  

So far this year, my 401k has earned more money than I have.....why would I want to mess that up!!?  


In a word - NEVER! I've been tempted to dip in and use the money by a beach house, but fortunately good sense prevailed.  


I was unemployed with no income at the time.  


While I have taken a withdrawal for a true emergency 20 years ago, I have never touched it again. I would like to have some standard of living when I retire. However, I have a friend who has taken many loans and has had as many as 5 outstanding loans at 1 time from her retirement accounts. Honestly, if you need this many loans to keep you afloat, you really need to adjust your style of living. I do not view consistent borrowing from your retirement account a good thing. You really need to forget it is an option unless you have a true emergency! Trips, shoes, dining out are NOT true emergencies.  


I might stop contributions temporarily in time of need but I would explore all other options first.  


I haven't had to deal with a real emergency and hopefully I won't. My position is not to touch it but...never say never.  


I wouldn't consider it for a second, if I chose to live beyond my means I'd simply change my lifestyle.  


It's been such a sacred cow for so long that I might still be scared to touch it when I'm supposed to. Seems, somehow, that ain't quite right either.  


When my wife and I first starting contributing to a 401k plan, we were "brave" enough to contribute because we knew we could access the money if we had to do it.  


The single loan was repaid within one year. Repaid loans are simply NOT leakage from the retirement system.

Verbatim (cont.)  

If one has the discipline and resources to pay the loan back, borrowing from one's 401(k) makes sense compared to any alternative.  


Absolutely NOT! If I had my way, we wouldn't allow loans from our 401(k) Plan. What part of "retirement plan" don't people get??  


shouldn't be done - there is a reason it’s called a retirement account.  


I have always felt that taking a loan from the 401K would cost me dearly in the future (which is getting very close). I have always been able to find another way to get what was needed.  


Distributions deplete your retirement savings. Money does not magically replace itself. Remember, you will need your savings more in retirement as your income will be reduced.  




Not a good idea, but I may be forced to take one in the next few years while getting kids through college.  


i was very young at the time and didn’t know any better since i went under the guise that i was paying back myself, then i was laid off from my employer and had to deal with a huge tax bill the following year. i decided from that point forward to never do that again, and advised others the same.  


I don't advocate taking loans or withdrawals from one's retirement savings unless it is the absolute last resort  


Imagine the run on the "bank" the day somebody says you can't touch your 401k until retirement... And then only as an annuity. That won't be a leakage "problem" it will be a full blown water main breakage! Wish people would quit trying to "fix" a non-existent problem. 



NOTE: Responses reflect the opinions of individual readers and not the stance of Asset International or its affiliates. 

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