Most Americans are getting better at avoiding a financial mistake that can be highly costly – tapping into their retirement funds to fund an emergency. However, Millennials by far have Baby Boomers beat in this.
The percentage of those who used retirement money to pay for an expense that was unexpected over the last year dropped from 19% during 2011 to a current 13%, revealed a new Bankrate.com survey. However, that figure still means more than 30 million Americans tapped their retirement funds.
However, the figures grow the closer the people are to being retired. The survey indicated that 17% of those aged 50 to 64 used retirement funds over the past year to cover a financial problem. This is worse as they are in their final years before retiring.
An analyst who works with funds on Wall Street for retirees said that using retirement savings in order to cover something that came up is a setback that is permanent to their retirement planning. He warned that using the retirement money early could lead to a hit on their taxes and penalties for early withdrawal if the person has not reached the age of 59.
The biggest reason behind the problem is people are not financially prepared for emergencies. Twenty-five percent of Americans lack a bona fide emergency fund.
On top of that, people need to become more disciplined in putting part of their income into accounts that are designated for any emergency. The figure needed in those funds is usually the amount large enough to cover six months worth of living expenses.
Many financial advisors know that one thing that jeopardizes many retirement savings is medical bills, which could be helped if a long term plans such as a life insurance policy were purchased.
Other analysts insist that workers should always put between 5% and 10% in a saving account and keep doing that each and every paycheck.
Unfortunately, they say very few people are disciplined enough to do that. One survey showed that in 2011, 7% of Americans were not preparing at all for retirement and that figure has increased to 9% today.