In the United States, the pensioner system can be through the public Social Security system or through the private sector. In the private sector, the 401(k) is one of the most popular and widely used options. Thanks to this pension system, many pensioners are not entirely dependent on the Social Security Administration. And the 401(k) can solve the lives of many Americans who decide to start using this system in time.
Although it is not the only private pension plan system, the 401(k) is the most famous. And it has many advantages for United States citizens. Even so, it has a very big disadvantage that can make any citizen who is going through a bad situation to see his retirement in danger.
We are talking about when an American becomes unemployed. When it comes to saving in the 401(k) pension plan, the pensioner can withdraw his money in case he needs it early. This seems like an advantage, but in reality it is quite the opposite. Through this practice, we can end up ruining our plan in the end.
Reasons not to take money out of the 401(k) when we are out of work
The moment we become unemployed, we could take money out of our 401(k) plan. Without a doubt, this possibility is tempting in many ways. If we don’t want to get into financial trouble in the present we can do so, but with the knowledge that this could get us into trouble in the future.
And not only will it give us problems, but it will make us lose a lot of money. For these two reasons we should not take money out of our 401(k) early:
The longer the time, the more money
The longer our money is in the pensioner’s plan, the more money it will give us in the future. Ultimately, this is an exponential plan. Therefore, the benefit percentage will be much higher if we take all this into account. Most of the money we leave inside will give us much more money.
So it’s best not to touch the 401(k) if we’re looking to have a good retirement plan in the future. In most cases, the difference can be abysmal, although it’s true that each case is individual. Research your own pension plan and see how much money the dollars you have saved right now will give you.
You will pay taxes on your 401(k)
More taxes, yes. You already pay taxes on a regular basis by saving money in your 401(k), right? Well, if you take money out of your pensioner’s plan before you turn 59 1/2, you’re going to have to pay some extra taxes.
And this will obviously cause you to lose purchasing power. For that reason, forget at all costs to withdraw money before that age. In case of maximum need, try to take only the necessary money.
In short, if you are working and want to avoid problems with the 401(k), either by tax or by losing percentages, save part of your salary. This will help you not only to be able to live better when you collect Social Security, but the 401(k) will be more than enough to pay all your monthly expenses.