The Expert Podcast

If you are thinking about tapping into your 401k for some emergency, for spending cash, or to cover bills, you're not alone. According to the Wall Street Journal, more and more people are hitting up their 401K for cash. And it could be for some emergency expense; it could be just to cover their monthly bills; it could even be to pay back debt.

Now, you might think that when somebody hits up their 401K for an emergency, it has to do with that emergency. That's not true. It has to do with the fact the fact that the emergency didn't have another source. There was not an emergency fund or savings. What that means is that it's not the emergency that's making it happen; it's the cash capital reserve that's making it happen. Emergencies happen all the time. Everybody has emergencies: transmission blows on your car, needing a new roof, medical expenses, braces for the kid, whatever it is. It's just that now the economy has made it so people don't have as much cash anywhere else other than the 401K. All the other cash has been used up—your savings account, your credit lines, your emergency fund—everything has been used up. The only thing left is a 401K. So, this is a troubling sign that shows that all of the other cash sources that people have are erased, and now they're starting to go into their 401k.

This is not only troubling for the economy right now, but it's even more problematic for the future. That 401k is supposed to be there for retirement. So, in 10, 15, 20, or 30 years, when you retire, you will have money to be able to use when you're not working. Because when you retire, by definition, that means you're not working. You're not going to have that income from your daily or weekly paycheck. Your job is not going to give you a payroll every Friday. You're not going to have that direct deposit in your bank account. The 401K is supposed to cover some of that, or at least make it more comfortable.

So, what does that mean? Well, it means that if you used up your 401k and you're 75 years old and you want to retire, then there's not going to be that money. And you're not going to have an income, which means you're the worst of both worlds. So, if you're thinking about tapping your 401k, if you have to do it, you have to do it right. And there are methods you can use to do that, as you'll see on our website. But be prepared to make sure that you're looking at what your options are for replacing that while still being in a position where you have financial security for retirement at some point in the future.