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March 2023 E-Newsletter: Should You Use Your Retirement Savings for Something Else? Thumbnail

March 2023 E-Newsletter: Should You Use Your Retirement Savings for Something Else?

Melissa A. Seamon, CFP®   

Senior Financial Advisor  

Should You Use Your Retirement Savings for Something Else?

The temptation is great to dip into retirement savings for big expenses.  But it can be detrimental to your future.

Year after year, paycheck after paycheck, you have saved for your retirement. Occasionally you read your quarterly statement and feel satisfied with the nest egg that is growing for your future.  But when it comes time to send your kid to college, put a down payment on your dream house, or start that small business you’ve been thinking about, is it okay to dip into those retirement savings?

Our expert opinion is a big, fat “NO! Don’t do it! Abort! Turn back!” 

We understand the temptation can be great.  As financial advisors, we get this question a lot, so let’s dive into why using your retirement savings for something else is a terrible idea.


You could be subject to several penalties:

●       Early Withdraw: If you take out money from your 401(k) and IRA accounts before you reach the age of 59½, the IRS will assess a 10% early withdrawal penalty on all pretax withdrawals.

●       Taxes: The IRS also requires most 401(k) withdrawals to have an automatic 20% tax withholding.

Imagine you want $10,000 to use to start a business. In order to net $10,000, you will actually have to withdraw $14,286 because the government will take from you the 10% early withdrawal penalty ($1,428) and 20% tax withholding ($2,858). Why dip into your savings early just to let the IRS have it? Seems silly, doesn’t it? 

Lost Growth

Your retirement account – just like all investments – grows based on contributions and compounding. The higher the balance, the more compounding. For example, if you took out $100,000 to pay off debt or to jump-start your own business, not only do you not have that money in your account anymore, but you also lose out on the power of the compounding that money brought with it.

Let’s say you are 45 years old, and your retirement account has $250,000 in it when you decide to take out $100,000 to pay off debt or to start a new business venture. Your account now has $150,000; it earns a return of 8% over the next 20 years and you never make another contribution. When you retire at age 65, your account has about $699,000. But if you had kept the account at $250,000 with the same 8% rate and no more contributions, you would retire at the same time with $1,165,000. That’s a difference of about $466,000 and a whole different retirement lifestyle for you.

 Alternatives to Withdrawing from Your Retirement Account

We know you wouldn’t be asking about withdrawing money from your retirement account if you didn’t think you needed to for your own financial status or weren’t nervous about the current state of the economy. But there are alternatives. From starting early with college savings plans to emergency funds and more, let us help you take control of your overall financial health and reach your savings and retirement goals.

If you are in need of this type of guidance, we encourage you to Contact Us. Having a mentor and guide can make all the difference in your ability to save and protect your wealth for the future.  We best serve clients looking for exceptional client service, who value a long-term partnership, and have a minimum of $500,000 in investable assets.

Publication Disclosure:  

To better understand the nature and scope of the advisory services and business practices of Gardey Financial Advisors Inc., please review our SEC Form ADV Part 2A and ADV Part 3 (Form CRS) available via the SEC's website, www.adviserinfo.sec.gov. (Click on the link, select “Investment Advisor Firm,” and type in the firm name. Results will provide you both Part 1, 2 and 3 of the Gardey Financial Advisors Form ADV.) Statistics from third-party sources are deemed to be accurate but have not been confirmed by Gardey Financial Advisors. 

This communication is for informational purposes only and does not purport to be a complete statement of all material facts related to any company, industry, or security mentioned. The information provided, while not guaranteed as to accuracy or completeness, has been obtained from sources believed to be reliable. Moreover, you should not assume that any discussion or information contained in this commentary serves as the receipt of, or is a substitute for, personalized investment advice from Gardey Financial Advisors.  The opinions expressed reflect our judgment now and are subject to change without notice and may or may not be updated. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, expressed or implied, is made regarding future performance. Readers who are not market professionals or institutional clients of Gardey Financial Advisors should seek the advice of their financial advisor, tax or legal advisor before making any investment decisions based on this communication. Gardey Financial Advisors does not render legal, accounting or tax advice. Gardey Financial Advisors works closely with our client’s other professional advisors. The solutions discussed may not be suitable for you, even if your situation is like the example presented. Investors must make their own decisions based on their specific investment objectives and financial circumstances. It should not be assumed that the recommendations made in this situation will result in the mentioned outcome. The commentary does not represent any specific clients, investments, or strategies.   


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