Investor: Retirement funds should be last resort to shortcomings
Jul 23, 2012, 3:38 PM | Updated: 3:38 pm
SCOTTSDALE, Ariz. – Retirement funds should be raided only as a last resort, said KTAR’s Smart Investor, Wayne Stutzer.
A Transamerica report said 35 percent of unemployed Americans have taken money out of their retirement savings just to get by. Many people who’ve lost jobs have defaulted on 401(k) loans and the taxes and penalities have further eroded their retirement savings.
“It’s the money people have put aside to have a more comfortable retirement,” said Stutzer. “The negative is that, when you do find a job, the odds are to replenish it you’re going to have to work longer.”
Stutzer said the situation will only get better when we see a significant decrease in the unemployment rate.
“If you have a 401(k) plan and you tap into it before the age of 59-and-a-half, not only do you have to pay income tax, but you will also pay an early withdrawl penalty of ten percent,” he said. “You can avoid that by doing what is called a 72T. You still pay income tax on what you withdraw but you avoid the early withdrawl penalty. A 72T could be a viable option to at least reduce the tax bite. But then you’re getting monthly distributions and you’re not going to be able to take out a sizable chunk at any one time of your retirement money.”
A 401(k) account is one of the few assets that can be protected in the event of bankruptcy.
Another danger sign that Stutzer is seeing is the number of people now filing and receiving Social Security disability running higher per month than the number of people that are being hired.
