Unfortunately, the report has found that many among this demographic have come up with a ‘solution’ to the financial pressures they face: making early withdrawals from their 401(k) plan, with 25% of the 18 to 34 year-olds surveyed saying that they have already accessed funds from within their 401(k) accounts.
A False Economy
Younger individuals who seek to pay off credit card debts, student debts, housing costs or the capital expense inherent in cross-border moves, should be wary of ever taking money from their 401(k) plans.
This is because a 401(k) is a vehicle for future financial security that also offers tax savings in the present as well as, for many, the bonus of matched contributions from their employers. Any withdrawal made before the account holder turns 59½ is likely to attract income tax as well as a 10% early withdrawal penalty.
The Long View is Everything
There are no aspects of retirement planning more important than starting early and keeping a long view. With an ageing population, increased longevity and growing uncertainty over the future of state and private pensions, by developing a strategy in your twenties or thirties, and keeping disciplined to it, you will give yourself the best possible chance of enjoying a healthy and wealthy retirement.
Beginning early gives savers more time to realise the benefits of compound interest, investment growth and a more adventurous strategy. In contrast, by taking money out of their accounts to meet the costs of debt and living expenses, younger retirement savers are exposing themselves to the possibility of serious long-term consequences.
It is a far better idea to keep a tighter budget, to resist luxury outlays and to be as strict as possible so that you can give yourself the best chance of putting regular savings away or – alternatively – contributing to an investment portfolio or retirement plan. This is particularly true if you are a cross-border individual – for example, US non-residents – as you may incur burdensome tax events while at the same being prone to the holiday spending mentality that can so often be a major pitfall for the expatriate individual.
Wealth Management for Cross-Border Individuals
It is never too early to begin the process of structuring your wealth, your cross-border financial interests and your retirement plans.
In fact, the earlier you begin the process, the more likely you are to enjoy gains in the future. This is true regardless of the size of your income, although individuals with the highest salaries have the greatest potential to enjoy significant investment growth.
Speak with Blacktower Financial Management (US) LLC today for more information about how we may be able to help you protect and grow the financial interests for yourself and your family.
* https://www.prb.org/aging-unitedstates-fact-sheet/
** https://www.ml.com/early-adulthood-age-wave.html
This communication is for informational purposes only and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.
Investment advice and investment advisory services offered and provided through Blacktower Financial Management US, LLC. This communication is for informational purposes only based on our understanding of current legislation and practices which are subject to change and are not intended to constitute, and should not be construed as, investment advice, tax advice, tax recommendations, investment recommendations or investment research. You should seek advice from a professional before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.