Financial planning requires more than just diligently putting money away in a savings account and living a frugal lifestyle. Those who are serious about their financial well-being would be wise to invest their money in various retirement accounts. Having a range of investments can help ensure financial security.
Data from Fidelity Investments shows that while some people are being smart with their finances and putting money away in 401(k) accounts, others are actually borrowing against them.
Borrowing against a retirement account can have several negative effects. Those who borrow against a 401(k) plan, for example, are not only taking money away from funds set aside for retirement, but they are losing out on accrued interest as well.
Fidelity Investments workplace investing president James MacDonald says that people should be aware of all the implications involved with taking money out of a retirement account.
“We recognize that for some, taking a loan or a hardship withdrawal from their 401(k) may be their only option because it’s their only form of savings,” MacDonald said. “However, we want to make sure that before workers tap their retirement accounts prematurely, they are fully educated about both the penalty that may be incurred and the long-term implications for their retirement.”