Why you shouldn’t use retirement savings for an emergency


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Every month, Bankrate.com is asking Americans with regard to various components to their financial security: Is it getting better or is it getting worse? 

After 2 months of declines, we actually saw a nice rebound this month in terms of how Americans feel about their overall financial security. Now the rebounding feelings are attributable to some solid fundamentals that we’re seeing with regard to the U.S. economy — In particular, the job market. And a testament to the fact that the economy is getting better, we see fewer Americans tapping their retirement savings for an emergency. That being said, still 1 in 8 Americans has tapped their retirement savings for an emergency in the course of the past year. It could be anything from a car breaking down; it could be a medical event; or a job loss; or a prolonged period of income reduction.

Tapping your retirement savings for an emergency is a permanent setback to your retirement savings because you’ve got the taxability on that distribution, the potential for an early withdrawal penalty on top of that. And keep in mind the real kicker when it comes to tapping your retirement savings for an emergency is that you never get to go back and make up for that money you’ve pulled out. Your best buffer for having to tap the retirement savings early is to have an emergency savings account. Ideally, enough to cover 6 months’ worth of expenses.

You really want to leave that retirement savings alone. To see if you’re on track for retirement, be sure to check out the retirement calculators at Bankrate.com.