Retirees sometimes tap savings for one-off expenses. Here’s what advisors say to consider first
Retirees who need cash for a one-time expense may look to their 401(k) or IRA, but financial advisors say there are trade-offs to weigh first.
Retirees occasionally face unexpected expenses, such as home repairs or medical bills, and may consider dipping into their retirement savings to cover the costs. Before making a withdrawal from a 401(k) or IRA, financial advisors recommend weighing the potential trade-offs. For instance, withdrawals from tax-deferred accounts can increase taxable income and may impact Social Security benefits or Medicare premiums.
Advisors also suggest considering alternative sources of funds, such as emergency savings or low-interest loans, to avoid depleting retirement accounts. Additionally, retirees should think about the long-term implications of reducing their retirement nest egg, which could impact their ability to sustain their lifestyle in the years to come. It's essential for retirees to assess their individual circumstances and explore options carefully.
Looking ahead, retirees should monitor their expenses and adjust their budgets accordingly to minimize the need for one-off withdrawals from retirement accounts. They should also review their overall financial plans and consider consulting with a financial advisor to determine the best course of action for their specific situation. As the retirement landscape continues to evolve, staying informed about the potential impact of withdrawals on long-term financial security will be crucial for retirees.
Originally reported by cnbc.com. Trade-News adds analysis for finance & markets readers.