In this country we are taught that the solution to any problem is to ask for a loan. Therefore, there are loans of colors and flavors. You have the loans to reward people who have good credit, who are rewarded, giving them a good percentage of interest on their next loan.
And you also have the loans for those who did not pay well and end up paying a high interest rate. On many occasions as people have already exhausted the other options they see the money loans from their 401K retirement account as a good option.
In fact you even market the product with the extra advantage that you can take a loan of up to $ 50,000 or 50% of what you have in your retirement account, whichever is less. The money you withdraw is given to you no matter how bad your credit is. Another advantage that they sell you is that the interest you are going to pay you pay yourself.
The money from your retirement will only come out of you
All these alleged advantages really are not. One of the worst things you can do is take one of these loans and I’ll explain why.
This is the main reason why you should not touch this money. If you do not contribute to your retirement, nobody will do it for you. We all know that social insurance (or social insecurity as many people call you) will not be available for much longer. Then, money for your future can only come from you. Every time you take a loan from your 401K you are putting your future at stake.
People ask for more than one loan at 401K
Most people who take 401K loans take more than one. In fact for many the 401K becomes the hen of the golden eggs and if you remember the hen did not end well in the story.
The contributions to the retreat are less.When you have one of these loans, it is very likely that you will not contribute the same amount that you previously contributed to your retirement, to repay the loan more quickly. This affects the growth of your account and the long-term consequences are gigantic.
Your return on investment is not so good
Even when you return the money with the interest, the return on your investment that you would receive with the mutual funds is much higher. Even more, when you receive interest on an investment someone else is paying these interest, at the time of making a loan you are the one who pays the interest. This is another way you can lose tens of thousands of dollars for your retirement.
Borrowing money about your future is a very bad business. And people love to present extreme examples of why they had to borrow the money. But, the reality is that almost any excuse is good to justify a loan.
Remember that the money for your retirement can not leave any other place.