A few months into 2019, COVID-19 made its mark worldwide by leaving people in sickness and without jobs. In the United States, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. One of the things this act entailed was a penalty-free option to take money out of their 401k or IRA if they were younger than 59½. Individuals can take up to $100,000 in a loan with no interest. This can sound very appealing to some people but just because you’re allowed to take this money out doesn’t mean you should. Your retirement money is there to help you after you’re done working so before taking it out make sure it’s a true emergency. Here are some reasons why you shouldn’t take money out of your retirement savings.
You Don’t Fall Under The Hardship Category
Although “hardship” is a subjective term, during a time like this you could fall under the category but not to the extent that you should pull money from your retirement savings. There are plenty of other options that you can take before making this decision. It’s very tempting to do something just because you can but this isn’t something you should. If your retirement money is in stocks and you want to withdrawal money to time the market, this can be very risky.
Buying Something You Want but Don’t Need
At the beginning of quarantine, many people were making online purchases for items that they most likely didn’t need at this exact moment. Buying yourself something always feels nice, but imagine how you’ll feel during retirement when your down and out on money. Non-essential expenses will only limit you in the future. Discipline yourself and realize that if money is tight then that special item you want is going to have to wait its turn. For example, if you’ve been waiting to go on a tropical vacation and see the lowers prices now, this doesn’t mean you should take money out to go. If you couldn’t afford it before then you shouldn’t be able to now.
You Want to Pay Off Debt
Paying off debt is a very good thing, but that’s if you have the money to do it. There are other ways you can pay off your debt or even cut some of it. Reach out to an academic counselor that can point you in the right direction. It makes sense to take out money if you have essential bills that need to be paid and you’re out of work but taking money out to pay off the debt you already have is not ideal.