If you needed to retire today would you be financially ready??
Statistics show half of Americans would not. In fact, when it comes to 401ks many have used part, drained them or don't have a retirement fund at all.
With an already shaky economy and a threat to slash social security benefits, where is the cash when you need to retire?
For some people, due to unforeseen circumstances, their finances have gotten so tight there are few to no choices.
Donna Williams and Sharon Semien are two women hit with unforeseen circumstances.
"We got a divorce, financially kind of strapped because of how the divorce went down," Williams said. "Lost my job of 17 years."
Semien's story is similar.
"Because of the rent, car insurance, I have two girls, just expenses began to pile up on me and I noticed the savings was not going to be enough for the next month," she said.
For both women, things started to spiral out of control. Williams drew unemployment for the first time in her life, for six months, and still didn't have a job, so she didn't have any other choice but to start using her 401k to live on.
"The bills didn't pause, the bills continued to come and I had to make a decision on what I needed to do to be on time and the creditors and that kind of thing," Williams said. 'I didn't want to go into debt."
Sound familiar? It may, since it's exactly what millions of Americans are facing. Reports show a 12% increase in workers taking loans out or withdrawing the money outright against their retirements since 2008; not to pay for a home or college education, but as a way to survive against the incoming monthly bills.
"I didn't want to get evicted," Semien said.
"I didn't have another choice, I didn't see another choice," Williams echoed.
Garry Patterson with Clearpoint Credit Counseling Services says he understands sometimes there are no other choices.
"It should be done only as a last resort," Patterson said. "Some financial experts refer to this as 'financial suicide.'"
Both women even depleted their severance and savings but Patterson says even so, using your 401k is still a risky alternative.
"If you take your money out of your 401k and something happens to your job, that loan becomes due immediately and you can face a 10% penalty as well as taxes," he said. "Not to mention, if you take out a loan against your 401k and can't it pay back. All of it becomes due in 30 to 90 days."
"It was gone, it was just money no longer in my 401k, so I probably spent half of my 401k living for that year," Williams said.
Patterson says there are good financial reasons to dip into your 401k. If you want to buy your first home, trying to avoid eviction, medical bills are climbing, and kids are heading to college are some examples.
"There's no credit check, usually you have a lower interest rate, usually it's prime rate plus about 1 or 2%, so if prime is at 3.25 you can get a loan for as low as 4.25%," he said.
For many, using retirement funds makes more financial sense then using your credit cards with a high percentage rate but Patterson says try to reduce all expenses first.
"You have a $300 phone bill, cellphone bill, and $200 cable bill," Patterson said, using an example. "Get rid of everything we think is a necessity. When they're actually luxuries, and that might help you come up with the money to pay your mortgage."
Even after all of that is done, draining the 401k may still be the only option. For both women, it's also been an expensive lesson and another chapter in their life story.
"Things are good now, my credit score is up around 700 now, which is amazing considering where it has been," Williams said.
"I had to step back and really see all this savings, all this savings," Semien echoed. "I still wasn't prepared for the worst."
When you don't have a choice, you have to do what you have to do.
But experts say millions of Americans are taking money out of their retirement accounts to pay down current bills, but it also means they're putting themselves at risk to one day retire in poverty.
WHBQ-TV | Fox 13
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