Periscope YOUR MONEY
as you’ve already paid tax on interest
and dividend distributions and the
underlying asset hasn’t had as much
gain or loss,” she says.Break Gently Into
Retirement Savings
accessing your retirement funds
before you actually retire is almost as
big a heresy as taking on credit card
debt, according to financial advi-
sors. Not only are you giving up the
opportunity to recoup recent losses in
your account but you’re giving up the
chance at future gains and gains on
those gains—a phenomenon known
as compounding that’s like an appli-
cation of Miracle-Gro on your savings.
Still, apart from your home if
you own one, a company-sponsored
retirement account is the biggest pile
of cash many people have access to.
Even with the market’s recent slide,
the average 401(k) balance at Fidel-
ity Investments, one of the country’s
biggest company retirement account
providers, is $91,400. That’s down
from $112,300 at the end of last year
but it’s still a good chunk of change.
If you’re still working but are strug-
gling because your hours have been
reduced or your spouse is out of work,
you can avoid permanent damage to
your retirement account by borrow-
ing against it instead of making an
outright withdrawal. The recent $2.
trillion relief bill from the federal gov-
ernment increased the amount you’re
allowed to take (up to $100,000) and
provided an extra year to pay it back
(up to six). Another plus: Interest rates
tend to be low compared to other
loans and you’re paying back the
money to yourself.
The drawback, in addition to
potentially sacrificing some future
growth on your savings is that, if
you lose your job and have an out-
standing loan, you’ll typically have
to pay it back within a few months,
or owe income taxes and, under
ordinary circumstances, a 10 per-
cent penalty. So, you only want to
go this route if you’re reasonably
sure your job is steady, to the extent
anyone can be these days.
Alternatively, you can withdraw
money outright. The relief bill also
made it easier to do this if you’re
under 55 and you’ve lost work because
of the economic fallout by waiving the
typical 10 percent penalty and giving
people three years to pay back the
money or settle up with the IRS.
As with a loan, though, you’re
essentially selling low, even if you
eventually replace the funds you take
out. Despite the recent bear market,
stocks, as measured by the S&P 500,
have delivered annualized gains of
7% over the past three years. Imagine
what kind of growth you might see
once the economy recovers. So, if at
all possible, resolve to actually repay
any funds you withdraw.Retire Early—and Then Maybe
Take It Back
delay claiming social security as
long as you possibly can is a mantra
among financial advisors. Although
you can take benefits as early as age
62, every year you wait increases the
amount you’ll eventually get, up toage 70. Since Social Security is the
most important source of income
for most retired Americans, waiting
to claim makes a lot of sense.
Still, while half of workers plan
to work until 65, more than a third
end up retiring before they want to,
according to Boston College’s Cen-
ter for Retirement Research, often
because of health issues or poor job
prospects. Given the global pandemic
that’s devastated the economy, and
that the virus disproportionately
affects people over 60, those factors
may push more older people to claim
Social Security early.
Of all the ways to get money to
help get you through the current
hard times, though, claiming Social
Security earlier than you planned has
the potential to do the greatest long-
term damage to your finances.
It’s a decision that’s difficult,
though not impossible, to reverse.
You can, for example, withdraw your
application if you find a new job
within a year of claiming. There’s a
big catch, though: You’ll have to repay
the benefits you received.
Once you reach full retirement
age—between 66 and 67 currently,
depending on the year you were
born—you can also suspend your
benefits, which would enable them
to resume growing up until you turn- Whether you’ll be able to find a
job then or your health will permit
working that long are open questions,
though, making this a shaky strategy
to count on.
That’s why experts like Rebell rec-
ommend only filing early if you’ve
exhausted all of your other options.
Ơ Taylor Tepper is a senior writer at
Wirecutter Money and a former staff
writer at Money magazine. His work
has additionally been published in For-
tune, NPR and Bloomberg.About one-third of
Americans say
they’re struggling to
pay all of their currentbills in full, according
to Pew Research.14 NEWSWEEK.COM MAY 22, 2020