401(k)s Tapped for Holiday Gifts
Many Americans have poor habits around saving for retirement, but tapping a 401(k) to buy holiday gifts seems beyond the pale.
Yet that’s precisely what some people do. In a new T. Rowe Price survey of 1,000 adults, 7 percent said they have spent some retirement savings on “holiday spending.” Surprisingly, men are more likely to do so than women, who, the survey indicates, are better at planning ahead for the holiday shopping season.
The survey doesn’t specify whether this spending is on gifts or a sleigh ride to grandma’s house, but it doesn’t really matter. When the commercial pressures of Christmas start eating into long-term saving for retirement, it seems to confirm that it’s too easy to withdraw money from 401(k)s, as a recent study by the Center for Retirement Research concluded.
If tapping into your 401(k) to buy gifts has crossed your mind, don’t do it: these seemingly “small” amounts add up. In total, pre-retirement withdrawals from retirement plans deplete roughly one-fourth of a typical U.S. worker’s account balance over a lifetime, according to the Center, which supports this blog. The most common withdrawals occur when workers change jobs, followed by withdrawals to ease financial hardships.
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I would be interested to know how the survey defined "retirement savings". If it was literally money that was in 401k plans or 403b plans or IRA's or if it was simply other money, like money in CD's or savings accounts or investments that many people think of as being long term money. In my experience, some people consider some of their buckets of money, even if they are not actually in retirement plans, as being retirement money - they have it mentally earmarked for their future. So it is possible they are mingling their money together as they answer the question. Also, it would be difficult to do an actual withdrawal from a 401k plan just for Xmas gifts - most plans require that the withdrawal meet the IRS established guidelines for reasons to access the funds. As an adviser to thousands of middle class people over the years, it certainly did occur that some of my clients would actually do withdrawals from their IRA's for the holidays. However, many times the withdrawals were very, very small. Also, in my case, if I had to guess, it would be much more around 1% or even less than that that would take a withdrawal from their tax protected accounts for Xmas gifts. I would see some loans, but many of these were quite small too and would typically be paid back without much problem. I would be very interested in seeing the trending information from withdrawals from retirement plans that would be provided by record keepers and custodians. That would clearly be a strong indicator of what is happening.