Employees tapping into retirement plans early

Despite the best intentions of retirement plan sponsors, 24% of Americans report that they have borrowed against or took early distribution from their retirement plans in the past three years, according to recent data from Purchasing Power.

The research finds that respondents are using their retirement funds to pay for everyday needs. These expenses include mortgage, rent and utilities (37%), medical expenses (24%), college tuition and expenses (22%) and credit card debt (22%.) Big-ticket items, such as appliances, electronics and computers, are even taking a bite out of retirement funds, with 18% of respondents saying they’ve dipped into their plans to make these purchases.

“The purpose of the 401(k) is to provide for employees’ golden years,” says Richard Carrano, president and CEO of Purchasing Power. “Sometimes employees need cash and believe there are no viable options other than to tap into their nest egg. Taking a loan from a 401(k) is rarely a good idea.”

Current financial problems are affecting employees, with 31% of respondents who are employed or have an employed spouse saying they cannot save toward their long-term financial goals right now. Another 50% of respondents say they can make some preparations for the future now but would like to do more.