Saving enough for retirement can fall far down on a to-do list for Americans squeezed by rising costs for necessities like food and energy. But even those who do set aside money can in a single move risk much of what they've saved.
Financial experts worried about the thin wallets of some workers are warning lawmakers in Washington that an increasing number of investors have begun to treat their retirement plans like piggy banks. While making loans or withdrawals from a retirement account is often linked to an emergency like illness, there is fresh evidence that the impact of even briefly sidelining money can be huge by the time retirement arrives.
Sen. Herb Kohl, D-Wis., chairman of the Senate's Special Committee on Aging, contends investors are robbing themselves of future earnings if they touch accounts that are supposed to be sacrosanct until retirement.
"We think it's a mistake generally to use the 401(k) for casual, everyday needs and that's what we're tying to focus on, highlight and hopefully try and do something about," Kohl said. "This is not saying that we're insensitive to the tough times people are going through."
Kohl and Sen. Charles Schumer, D-N.Y., have unveiled a bill that would ban the use of 401(k) debit cards, which they contend make it too easy for investors to remove money from their retirement savings. The bill also seeks to place a limit on the number of loans investors can take from their retirement accounts.
Kohl said investors need to be clear on the damage that missteps could cause to their retirement accounts. Beyond trying to save investors from themselves, he has other concerns.
The senator contends that strapped investors are more likely to make mistakes when they respond to marketing pitches from financial companies that are trying to land new business from rolled-over retirement accounts. He fears such pitches can gloss over the true costs of shifting money from one retirement account to another.
Financial ads do contain language, however, encouraging investors to review fees. Some ads spell out that while there might not be account fees on an IRA itself, for example, the underlying funds that an investor wades into could carry fees.
And, of course, moves such as rolling over an account can be beneficial as a way for investors to consolidate their investments or to move out of plans with inadequate choices.
But regardless of the degree to which ads might influence investors' decision-making, it appears more investors are taking risks with their retirement money.
In a new report, the Democratic-leaning Center for American Progress finds that the number of people taking loans from their retirement accounts is increasing, as is the amount of the loans.
The report notes that investors who borrow even small amounts from their 401(k) plans and only repay the loan -- without contributing more to make up for lost returns -- reduce their overall retirement savings by 13 percent to 22 percent.
Loans from defined contribution retirement plans like the 401(k) jumped nearly fivefold from 1989 to 2004 when accounting for inflation, according to the Center for American Progress report.
And advertising isn't the only thing that could be influencing investors.
John Gannon, a senior vice president with the Financial Industry Regulatory Authority, a non-governmental overseer, told the Committee on Aging that FINRA is concerned that some financial advisers are encouraging investors to tap into their retirement accounts too early.
Whatever might help investors make decisions about their savings, spiraling food and energy costs as well as a slumping housing market are only likely to make removing money from retirement accounts more tempting.
