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Greg McBride

Greg McBride: A nest egg no-no

By Greg McBride ·
Tuesday, November 17, 2015
Posted: 6 am ET

Have you raided your retirement nest egg lately because of something urgent that came up? If so, you may be among the 13% of Americans who have tapped their retirement savings to cover an emergency within the past 12 months, according to a Bankrate survey.


Who raids their retirement?

In a nod to an improving economy, the results are down from 19% who dipped into their retirement in 2011. Millennials are now the age group least likely to have tapped those savings, while 17% of those between the ages of 50 and 64 have done so, as have 1 in 6 upper-middle-income Americans.

And unfortunately, 9% of Americans -- 21 million people -- are not saving for retirement at all. That's up from 7% in 2011.

Using retirement savings to cover an emergency is not a smart strategy. Instead, it represents a permanent setback to retirement planning. You face the possibility of taxable distributions, early withdrawal penalties, loss of tax efficiency, and the inability to replace withdrawn funds in future years.

Wiser strategies

So leave your retirement alone when financial emergencies flare up. Consider other options, such as picking up additional hours or part-time work, applying for a home equity loan or HELOC, taking out a personal loan from a bank or credit union, or even hitting up a relative or friend for some money.

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Daniel Scott
November 19, 2015 at 11:16 am

Well, if you ask me, the most critical part of protecting your emergency retirement savings is just having a plan. Whether you use a spreadsheet or a tool like OnTrajectory or some other website -- you have to get everything out if front of you so you can make smarter decisions. Once you do that, then implementing your disciplined retirement strategy becomes critical.

Greg McBride, CFA
November 18, 2015 at 1:09 pm

Hi Jess, Yes you will be taxed on the proceeds. Annuities are tax-deferred so when they mature, Uncle Sam wants his share. Speak with your tax professional for specific advice on your situation.

jess padilla
November 18, 2015 at 10:03 am

Im 65 years old. I have a annuity and is going to mature-in one year am i going to get tax on the money? Also what should should i do so won't get tax so much.