Roughly half of retirement savers have taken money out of their retirement accounts early
— for reasons other than retirement, according to a survey of more than 1,000 adults released Tuesday by MagnifyMoney. This behavior is more common among millennials , than Generation Xers or boomers .
Young adults are drowning in debt. All told, households ages 18-34 have about $2 trillion in debt, with 81% of households in this age group having some kind of debt, the Merrill Lynch and Age Wave data showed. The most common debts are credit cards and student loans , with the average credit card balance for that age group hitting $3,700; more than half say they are struggling to pay that off.
Here’s a simplified example to show you how costly that may be. The average person in their 20s with a 401 has a balance of $10,500. Let’s say they withdraw a conservative $5,000 of that. Assuming a 25% federal tax rate and 6% state taxes, they’ll end up paying a total of $2,050 in taxes and early withdrawal penalties alone. That means they’re actually only getting $2,950.
Why do people do this? Many don’t realize just how pricey it will be, says Kolluri: “There’s no question the power of compounding is lost on folks.” Others may have nowhere else to turn. Whatever their reasons, for the most part, “people regret it,” says Kolluri.
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