A Loan From Your Retirement Accounts?

Most people can't or don't pay it back.


Unexpected expenses like medical bills or a death in the family can happen to anyone. And mortgage payments and credit card balances can creep up on you. When you're strapped for cash, the amount you've accumulated in your retirement accounts can look mighty tempting. And it's easy to pay the fee and borrow some cash from your retirement stash.

Some 27 percent of employees planning to retire have withdrawn funds early from retirement investments, according to a recent Wall Street Journal Online/Harris Interactive online survey. The reasons for withdrawing funds before retirement include (with share of all employees who have tapped accounts as a result):

Job loss/layoff 6 percent
Down payment on a home 6 percent
Credit card debt 5 percent
Divorce 3 percent
Unexpected health problems 3 percent
Education expenses 3 percent
Overspending 3 percent
Mortgage payments 3 percent
Death in the family 2 percent
To pay for an event (wedding, bar mitzvah) 2 percent
Recreational expenses, including vacations 1 percent
Other debt accumulation 3 percent
Other 5 percent

You might rationalize an early withdrawal by saying you have plenty of time to pay it back. You're not going to retire, say, for at least a decade. And after all those diligent contributions, you deserve to get out from under your debts, right?

It turns out that many people don't end up replacing the money once earmarked for retirement. Only 17 percent of people who have borrowed from their retirement accounts have fully paid back the early withdrawal and plan to continue to contribute to retirement accounts, the March survey of 2,897 adults found. Other employees who have tapped retirement funds early say they cannot pay it back (31 percent), haven't begun to repay (14 percent), are making payments (28 percent), and have paid back the early withdrawal but are no longer contributing to retirement investment products (9 percent). (Percentages don't total 100 because of rounding.)