DES MOINES -- "It's my money, why shouldn't I use it?" It's a mindset that can be a slippery slope for retirement savers.
The real cost of borrowing against a retirement nest egg is loss of tax-deferred earnings. The intangible nature of this lost future income makes the consequences of borrowing much harder for many to appreciate.
Borrowing accelerated in 2009 as the recession took jobs and homes from millions of workers who turned to their retirement accounts just to get by. The number of loans outstanding grew to a record level last year.
Almost 28 percent of workers with 401(k) accounts had a loan outstanding, according to human resources consultant Aon Hewitt. The rate had remained at 22 to 23 percent in the mid-2000s.
The Aon Hewitt study shows borrowers saved an average of 6.2 percent of pay, while the average among nonborrowers was 8.1 percent. More than 18 percent of borrowers stopped contributing altogether.
The consulting company studied the accounts of 1.8 million workers through 2010 and found that using retirement funds for other purposes has become routine.
Allowing workers to borrow against their accounts is intended to encourage savings. Without some access to the money many workers wouldn't contribute to their accounts. It's a reasonable balance between getting people to save and risking they may not be able to pay back the money, says Jean Young, a research analyst at Vanguard.
But rather than making it harder to access their funds, she believes 401(k) plan providers would be better off focusing on getting more people to save in the first place. About half of eligible workers enroll in workplace retirement plans.
"Without a doubt the reason why loans are spiking is a direct result of the really difficult economic circumstances working Americans are facing," said Marcia Wagner, a Boston-based attorney specializing in retirement issues. "It's economic necessity."
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