When Facing A Financial Hardship, Don’t Dip Into Your 401(k) To Fix It

If you look at your balance sheet and have an employer-sponsored retirement plan, there’s a fair chance that it’s one of your largest assets. This can lead many people to view their retirement plan as a resource when it comes to addressing major financial hardships. Let’s discuss why a retirement plan should be a last resort in these situations, how to reduce the burden of financial setbacks, and other ways to fund this need.

Why A Hardship Withdrawal Should Be A Last Resort

Let’s consider a hypothetical 35-year-old single investor. He makes $85,000 per year, has a 401(k) worth $100,000 today and experiences a serious hardship. His home burns down in a fire and he doesn’t have any insurance to repair/replace the home or his belongings. He withdraws the entire $100,000 from the 401(k) and uses it to rebuild his home.