Connect with us

Business

Suze Orman ‘was so upset, honest to God’ when the government made it easier to tap your 401(k) in a time of need — she has one big reason why you should never borrow from your retirement

News Agencies

Published

on

Suze Orman 'was so upset, honest to God’ when the government made it easier to tap your 401(k) in a time of need — she has one big reason why you should never borrow from your retirement

Suze Orman ‘was so upset, honest to God’ when the government made it easier to tap your 401(k) in a time of need — she has one big reason why you should never borrow from your retirement

It might have seemed like a good idea at the time: allowing Americans to pull from their 401(k) accounts penalty free when the COVID-19 pandemic struck.

Many people faced uncertainty when it came to their jobs and finances and the ability to dip into retirement funds provided some needed short-term stability.

“I was so upset, honest to God, when the government allowed people to withdraw $100,000 from their account,” personal finance expert Suze Orman told MoneyWise in a recent interview.

The author and host of the Women & Money Podcast says allowing people to take from their future selves was a big mistake that many will regret when they enter retirement.

“If you can’t pay your bills while you have a paycheck coming in, how are you going to pay for those exact same bills later on in life when you no longer have a paycheck coming in?”

Don’t miss

  • Black Friday has come early! Save on gifts now with these 20 Amazon deals you don’t want to miss

  • Over 65% of Americans don’t shop around for a better car insurance deal — and that could be costing you $500 a month

  • A TikToker paid off $17,000 in credit card debt by cash stuffing — can it work for you?

WATCH NOW: Suze Orman warns cash-strapped Americans not to tap their 401(k)

What happened

The CARES Act, a COVID relief law that was enacted in March of 2020, made it easier to pull money from one’s 401(k) or IRA.

It allowed people to take up to $100,000 out of their accounts and have three years to pay it back without the normal 10% early withdrawal penalty and tax payment.

For Americans who needed cash quickly, their 401(k) was a tempting well to dip into that wouldn’t have been otherwise available.

In the spring of 2020, nearly 20% of all withdrawals from 401(k)’s, between April 6 and June 26 were related to COVID, according to CNBC.

CNBC reported that at Fidelity Investments, the largest provider of 401(k) plans in the U.S., more than 700,000 people took from their 401(k) or their 403(b) plan. The median amount was about $5,000, while more than 18,000 people asked for the full $100,000 amount.

And Vanguard’s How America Saves report from 2021 found that more than 7% of people withdrew from their 401(k) or a 401(b) — similar to a 401(k) but available to not-for-profit companies — in 2020.

But Orman says taking money out of those retirement accounts at that time has ended up costing people a lot more in the long run.

“It tells you that people did not have an emergency savings account,” she says.

Orman is hoping to help people avoid this in the future. She co-founded a company, SecureSave, that is aiming to help people save in a way that works similar to a 401(k).

Unseen costs of dipping into your 401(k)

People who took money from their accounts at that time missed out on having that money work for them during the historic market gains that came after the deep lows of 2020, says Orman.

“They allowed them to do that at the exact time that the stock market was skyrocketing – skyrocketing, right, so they missed out on a tremendous amount of growth, especially if they were near retirement at that time.”

And now that the stock market is in bear territory and there’s plenty more uncertainty in the economy, putting that money back into your 401(k) isn’t looking all that appealing.

Read more: Trade up while the market is down: Here are the best investing apps to pounce on ‘once-in-a-generation’ opportunities (even if you’re a beginner)

In fact, Fidelity released a new report that showed the average 401(k) balance dropped 23% year over year due to market volatility.

“People who are working today are watching their 401(k)’s go down 10%, 20%, 50%,” says Orman. “You can mark my bottom dollar, that they will stop contributing to their 401(k)’s because they are scared to death.”

Don’t go dipping into your 401(k) now

Beyond missing the historic gains, taking from your 401(k) can leave you vulnerable if you ever need to declare bankruptcy, says Orman, because 401(k)’s are protected against bankruptcy and can’t be touched if you ever need to declare it.

“So if you are really in a horrific situation, and you have all this debt, you’re underwater with everything, and you need to claim bankruptcy to get rid of that, you still have your retirement accounts.”

By making it easy to pull from those accounts, legislators have allowed a lot of people to put their financial future at risk, says Orman.

“If you start taking money from your retirement accounts simply to pay bills and use it for anything other than retirement, you’re going to use up all the money that was protected against bankruptcy to pay bills,” says Orman. “Now you don’t have the money to do so.”

But Orman also recognizes the fear that uncertainty brings and how those fears can influence what you do with your money, and right now, there’s a lot of uncertainty.

“I have compassion for them,” she says. “I have feelings for them. I have understanding for the fear that they’re going through.”

What to read next

  • You’re probably overpaying when you shop online — get this free tool before Black Friday

  • Mitt Romney says a billionaire tax will trigger demand for these two assets — get in now before the super-rich swarm

  • Rich young Americans have lost confidence in the stock market — and are betting on these 3 assets instead

WATCH NOW: Full Q&A with Suze Orman and Devin Miller of SecureSave

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

Continue Reading
Advertisement

Breaking News

Advertisement

Editor Pick’s

Latest Entertainment

Entertainment4 hours ago

‘The Voice’ frontrunner gets eliminated while in COVID lockdown: ‘I can’t believe you’re in a box still’

Bottom three Rowan Grace and Kim Cruse await their fate, while Kiqué waits in COVID lockdown, on ‘The Voice’ Season...

Entertainment8 hours ago

Kim Kardashian and Kanye West finally settle divorce, rapper will pay $200K a month in child support

Kim Kardashian and Kanye West finally settle divorce. (Photo: Reuters) Kim Kardashian and Kanye West have finally settled their divorce,...

Entertainment10 hours ago

Mamma mia! The Super Mario Bros. Movie trailer reveals Seth Rogen’s Donkey Kong, Anya Taylor-Joy’s Peach

   So far, The Super Mario Bros. Movie has introduced audiences to Chris Pratt as the titular mustachioed Italian, Charlie...

Entertainment11 hours ago

Country singer Jake Flint, 37, dies unexpectedly just hours after his wedding

Country singer Jake Flint has died at age 37. (Photo: YouTube) Oklahoma country music artist Jake Flint died unexpectedly over...

Entertainment12 hours ago

‘Easy Rider’ Reboot in the Works: Rights Holders to Update Dennis Hopper-Peter Fonda Classic (EXCLUSIVE)

A reimagining of the classic 1969 counterculture film “Easy Rider” is in early development, Variety has learned exclusively. A consortium...

Entertainment12 hours ago

Steve Martin & Martin Short, Austin Butler to Host ‘Saturday Night Live’ in December

Steve Martin and Martin Short are set to co-host “Saturday Night Live” in December, with “Elvis” star Austin Butler also...

Entertainment13 hours ago

Amy Grant says bicycle accident gave her an opportunity to reflect on her life: ‘That’s a gift for anybody’

Amy Grant, pictured in 2021 in Nashville. (Photo: Kevin Mazur/Getty Images for ACM) Just four months ago, Amy Grant was...

Entertainment13 hours ago

Joe Pesci reveals that he had sustained ‘serious burns’ while shooting ‘Home Alone 2’

Daniel Stern and Joe Pesci as the Wet Bandits in Home Alone 2: Lost in New York. (Photo: 20th Century...

Latest Sports

Sports38 mins ago

NFL flexes Chargers-Dolphins in Week 14, puts Tua Tagovailoa vs. Justin Herbert in prime time

The great debate of the 2020 draft is getting prime-time treatment in Week 14.

Sports1 hour ago

Charles Barkley triples down on Klay Thompson career decline comments

In an interview with Taylor Rooks, Charles Barkley triples down on his comments regarding Klay Thompson's decline.

Sports1 hour ago

Warriors-Mavericks first clash lives up to hype despite late controversy

The final score wasn't what the Warriors wanted, but these two teams gave fans a show in Dallas.

Sports2 hours ago

‘Maybe Tiger just dislikes me’: The history between Woods and Greg Norman

Tiger Woods and Greg Norman have had a good bit of history, most of it not so cordial.

Sports3 hours ago

Louisville and Cal both fall to 0-7, simultaneously post worst starts in major conference history

What if Louisville and Cal just played each other for the rest of the season?

Sports3 hours ago

Luke Fickell & Hugh Freeze find new jobs, reacting to the latest College Football Playoff rankings & where does Coach Prime end up?

Dan Wetzel, SI’s Pat Forde & SI’s Ross Dellenger break down all of the biggest college football hires along with...

Sports3 hours ago

Aaron Judge free agency buzz: Slugger could be nearing decision on where to sign

Here is the latest buzz surrounding Yankees star Aaron Judge's free agency...

Sports4 hours ago

World Cup scores, updates: Denmark vs. Australia, France vs. Tunisia, Mexico vs. Saudi Arabia, Poland vs. Argentina

What does Lionel Messi have in store on Wednesday? Argentina can advance to the knockout rounds of the World Cup...

Technology Hot News

Is Elon Musk Really Going to Buy Twitter? Is Elon Musk Really Going to Buy Twitter?
Technology1 month ago

Is Elon Musk Really Going to Buy Twitter?

Elon Musk, the owner of the electric car company Tesla, CEO of SpaceX, and the richest man in the world,...

WhatsApp services were affected across Pakistan, restored after 2 hours WhatsApp services were affected across Pakistan, restored after 2 hours
Technology1 month ago

WhatsApp services were affected across Pakistan, restored after 2 hours

WhatsApp services were affected in various countries of the world, including Pakistan, and India due to this users were facing...

Bitcoin vs Litecoin: A guide to understanding cryptocurrencies Bitcoin vs Litecoin: A guide to understanding cryptocurrencies
Technology2 months ago

Bitcoin vs Litecoin: A guide to understanding cryptocurrencies

Cryptocurrencies currently occupy an odd place in society. They are no longer the super niche bizarre currency beloved by tech...

Personal data of people is selling on Google Play and Google Ads Personal data of people is selling on Google Play and Google Ads
Editor Picks3 months ago

Personal data of people are sold on Google Play and Google Ads

It’s been two to three years since Google has been unknowingly hosting multiple apps from malicious actors who sell personal...

Protonmail is down a second time in the past 24 hours Protonmail is down a second time in the past 24 hours
Technology5 months ago

Protonmail is down a second time in the past 24 hours

An end-to-end encrypted email service Protonmail is down a second time in the past 24 hours, netizens reported on social...

What's better for the student: a tablet or a laptop What's better for the student: a tablet or a laptop
Technology6 months ago

What’s better for the student: a tablet or a laptop

Some analysts argue that computers have outlived their usefulness. There is some truth in this: PC and laptop sales are...

Tesla founder Elon Musk holds the Twitter deal temporary Tesla founder Elon Musk holds the Twitter deal temporary
Technology7 months ago

Tesla founder Elon Musk holds the Twitter deal temporary

USA: Elon Musk, the founder of companies like Tesla and SpaceX, can actually buy anything in the world. Last month,...

How Zafar Supari is utilizing his ability on Snapchat? How Zafar Supari is utilizing his ability on Snapchat?
Technology7 months ago

How Zafar Supari is utilizing his ability on Snapchat?

Pakistan: Zafar Supari a public figure, businessman, and social media sensation has crossed one hundred thirty-three thousand 133k subscribers on...