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It is a serious problem that middle-class Americans are approaching retirement age without enough money to support themselves. Recent data from the Transamerica Institute reveals that 33% of middle-class Americans cash out their retirement savings before retirement.
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This is a worrying trend. Because too many people are at risk of poverty in old age. Most middle-class families tap into endowments that are supposed to support their retirement. So let’s look at five reasons why this happens.
economic emergency
One reason many middle-class people need to draw down their retirement savings early is because of unexpected financial emergencies.
Emergencies that can cause these withdrawals include unexpected medical bills, emergency home repairs, and losing your job without notice. These issues force people to access money before they retire.
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Debt and daily expenses
When it comes to saving for retirement, paying down debt is also a major reason why people save heavily for retirement.
High-interest credit cards, student loans, and personal debt are the main factors that push most people beyond their financial means. For most people, retirement remains the only solution to paying off this debt.
A study by Transamerica found that people facing debt are more likely to withdraw from their retirement accounts to cover their growing personal loan burden. This is especially common in low-income to lower-middle class households where juggling debt and daily expenses is part of daily life.
medical expenses
Health care remains a financial burden for too many families in the United States, especially those without comprehensive health insurance.
Many people may resort to tapping into their retirement savings to cover these unexpected medical expenses. In fact, according to a report from Transamerica, 20% of people who put money toward retirement say medical expenses are the main reason.
Whether it’s an unexpected surgery or the ongoing costs of managing a chronic disease, medical costs can quickly eat into retirement savings, prompting people to tap into their retirement savings sooner.
Rising health care costs, especially for those with chronic illnesses, are leaving many people with no choice but to tap into their retirement savings.
Burden of educational expenses
Another major reason middle-class families withdraw early retirement savings is to cover education costs.
In recent years, university tuition fees have skyrocketed. Many parents prioritize their children’s education over their own financial future. Transamerica reports that about 12% of people who take out 401(k) loans report using the funds to pay for their children’s college tuition.
This approach can jeopardize your retirement security. Parents who didn’t have the privilege of a college education tend to mistakenly use their retirement savings to help their children avoid student loans.
Eviction prevention
More and more people are now struggling with the effects of housing costs and instability. In fact, many Americans are already using their retirement funds to avoid eviction or foreclosure.
According to a study by Transamerica, 10% of middle-class Americans have had to take money out of their retirement accounts to cover housing costs such as rent or mortgage payments.
This is especially worrying as housing prices have recently skyrocketed in most urban areas. Americans fear losing their homes or being evicted because rents are too high compared to people’s salaries. Therefore, they are forced to use their retirement funds to keep a roof over their head.
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This article originally appeared on GOBankingRates.com: 5 Reasons Why the Middle Class is Exiting Their Retirement Accounts Early