Washington — Jan. 16

New research released by HelloWallet finds that more than 25 percent of U.S. workers participating in a 401 (k) plan will access it before they reach retirement, now withdrawing $70 billion annually.

The study, which analyzed consumer finance data from the Federal Reserve and the U.S. Census Bureau, raises significant questions about the future of the bedrock retirement program as more workers move from traditional pension benefits toward tax-incented defined contribution programs.

The survey results also hold significant implications for employers, who collectively invest $118 billion annually in 401 (k) programs for their workers' retirement.

The research finds that one out of four participants in 401 (k) retirement programs will either cash out their savings before retirement — incurring substantial penalties and taxes — or forfeit them to loans.

Among the other findings in the research:

• 26 percent of 401 (k) participants now use their 401 (k) savings for non-retirement needs.
• 75 percent report that they breached their savings because of basic money management problems.
• Workers now withdraw or breach more than $70 billion annually out of their 401 (k) for non-retirement needs.
• Penalized withdrawals increased from $36 billion to about $60 billion between 2004 and 2010.

Workers in their 40s are most likely to breach their savings for non-retirement needs, according to the study.

The research also finds that only a small percentage of employees (8 percent) are withdrawing funds because they have lost their jobs. Instead, 75 percent of those who have made early withdrawals have done so because they lack basic money management skills and need to meet basic money management challenges — such as emergencies, credit card payments and health care.

In many cases, better planning and guidance would put them on a track to avoid costly mistakes, take advantage of the tax incentives and accumulate the savings needed for retirement.

Source: HelloWallet