Workers Draw From 401(k)s During Hard Times

Hard times, unemployment and medical emergencies are leading more and more workers to take loans from their 401(k) retirement plans.

A study recently released by the Center for American Progress shows that borrowing from retirement savings can have huge negative effects in the future. A small, $5,000 loan taken by an average worker can cut future retirement savings by approximately 22%.

Despite the negative implications of pulling from their 401(k)s, middle-class families in particular are looking to these loans to get through the rough economic times.

Christian Weller, an author of the study, said that as long as other retirement income savings such as Social Security don’t dry up, these loans will not present future problems. But as the future of Social Security becomes more unstable and pension plans disappear, 401(k)s are becoming the primary source of retirement income.

Another study, conducted by Hewitt Associates, found that four out of five workers are not putting enough away into their 401(k)s to maintain their standard of living in retirement.