How leaders can prevent employees from using their 401(k)s early

• Key Insight: Learn how employer financial-wellness tools can reduce 401(k) withdrawals and protect retirement progress.
• What's at Stake: Rising short-term needs could erode multi-decade retirement savings and increase employer turnover.
• Supporting Data: Over 40% of employees have considered tapping their 401(k)/403(b) for debt relief.
• Source: Bullets generated by AI with editorial review

Saving for retirement is slipping out of reach for employees facing financial difficulties, and it's forcing them to make choices today that may undermine their future security.

More than four in ten employees have thought about dipping into their 401(k) or 403(b) to cover debt, according to a recent trend report from affordable loan provider Kashable — a quick fix with plenty of costly risks that could derail years of retirement progress. Leaders have the opportunity to step in with financial wellness strategies and tools that can guide and support employees through every stage of their retirement savings journey.

"Rising living costs and lack of short-term options are forcing employees to choose between buying groceries or saving for retirement," says Einat Steklov, co-founder and co-CEO of Kashable. "They don't have an alternative and they don't always understand how horrible taking money out of their 401(k) can be." 

Read more: 401(k) plan sponsors expand financial wellness offerings

While there are some cases where taking money out of a 401(k) could support other long-term financial goals, like borrowing to put into a downpayment on a home, removing funds early from retirement accounts comes with penalties, fees and additional taxes. This can further reduce any remaining savings potential. 

Even worse is when employees start using this money for shorter-term needs like emergency medical bills, home and car expenses and credit card debt. While employees may plan on eventually replacing the amount they borrowed, if they didn't have the funds to pay those bills in the first place, they likely won't have the funds to replenish the account. Younger workers early in their career or those facing financial setbacks are particularly at risk.

"It's very hard to save for retirement — especially when the horizon is so far out," Steklov says. "To them, they need that money now, not 40 years from now. What we're trying to do at Kashable is to present a better alternative because we believe that if you give people more choices, they're more likely to make the right one for them."   

Financial wellness tools make retirement possible

Leaders can prevent employees' from reaching the point of pulling from their 401(k) by simply providing a financial wellness tool that helps them budget and save outside of their retirement accounts. Through Kashable, employees have access to webinars and resources that break down and explain complicated processes to help them make educated decisions. In cases where employees are in an active crisis and need more short-term help, Kashable also offers employees quick and reliable access to low-interest loans so that employees are able to overcome their financial burden faster and pay off their balance slowly so as to not put their overall savings strategy in jeopardy.

Read more: Employees feel bleak about their financial futures, despite robust benefits

"Financial wellness is becoming more and more critical to benefit packages and that's because it's easy for leaders to do," Steklov says. "Organizations are already trying to support employees by offering the best retirement plans they can, the same should go for financial wellness tools that help [them reach those goals.]"  

The positive results have already been made clear, with 83% of employees saying that access to Kashable helped them avoid tapping into retirement accounts. But investing in financial wellness is not just good for employees' personal lives — it also improves their professional lives by eliminating some of the largest stressors, enabling them to remain focused and engaged in their work. 

"Leaders should want to make sure that their people are happy, satisfied and excited about the work that they're going to do in order to move the company forward," Steklov says. "And while it's true that you can't solve all of  employees' issues, if you can step in and add a little bit more convenience to solving them, you should be doing that."