Here’s the Average Social Security Benefit at Ages 62, 65, and 70
Claiming age has the most sway of any factor when determining how much you'll receive each month and during your lifetime from Social Security.
You never know when life might surprise you with an unplanned expense. That unexpected bill could relate to your car, your home, your pet, or your health. The possibilities are endless — and not in a good way.
That’s why it’s so important to have an emergency fund to fall back on. But what if that’s not the case, and the only savings you have in your name are in 401(k) form?
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At first, you may be tempted to take a withdrawal from your 401(k) plan. But if you’re not yet 59 1/2 years old, that withdrawal could result in a 10% penalty.
However, there may be another option for accessing funds from your 401(k) in a pinch. If your plan allows for it, you may have the option to borrow against your 401(k).
This might seem like a great idea at first. This way, instead of paying interest to a lender, you’re simply repaying yourself.
But while a 401(k) loan might seem like a smart move, it’s a decision that could really backfire on you. So you may want to explore other options for borrowing money in an affordable manner.
The danger of borrowing against your 401(k)
The amount of money you’re able to borrow from your 401(k) will depend on your plan’s rules. But you may like the idea of repaying your own balance instead of allowing an outside lender to profit off your loan.
The problem with a 401(k) loan, though, is that if you don’t repay it on time, your outstanding sum is treated as an early withdrawal. And that could result in a 10% penalty.
Furthermore, you might initially have a few years to repay your 401(k) loan — as long as you remain employed by the company sponsoring that plan. But often, when you separate from your employer, whether voluntarily or otherwise, your 401(k) loan repayment window is whittled down significantly.
In that scenario, you may have just a few months to repay that sum (the specifics will depend on your plan’s rules). So even if you have every intension of repaying your 401(k) loan, you may not end up being able to do so.
Also, penalties aside, if you don’t repay a 401(k) loan, you’ll have that much less money in your account by the time you actually retire. And that could lead to a pretty significant shortfall.
Look at other options before borrowing from your 401(k)
At first, borrowing from your 401(k) might seem like your best option when a need for money arises. But given the risks involved, you may want to look at a personal loan instead.
A personal loan allows you to borrow money for any purpose. And personal loan rates, generally speaking, tend to be far more competitive than the interest you’ll pay on a credit card balance.
Now at this very moment, borrowing rates in general are elevated on the heels of the Federal Reserve’s 2022 and 2023 interest rate increases. And that extends to personal loan rates.
But still, a personal loan may be a safer bet than borrowing the money from your 401(k). And if you shop around for quotes, you may find that you’re able to secure a personal loan that’s more affordable than expected.
Plus, if your financial situation improves, you can often repay a personal loan early without penalty. And that might limit the amount of interest you end up paying all in.
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