A Third of Americans Have Made the Worst Retirement Saving Mistake

Nearly a third of Americans have made one of the worst retirement savings mistakes, and nearly half who have regretted doing so, according to a new survey.

TIAA-CREF recently found that 29% of Americans who participate in a retirement plan have taken out a loan from the savings in the plan. Of those who have borrowed 44% said they regret the decision, but another 43% have taken out 2 or 3 loans.

"Too many people have struggled since the 2008 financial crisis and have looked at loans from their retirement plans as a way to ease financial stress," Teresa Hassara, executive vice president of TIAA-CREF's Institutional Business, said in a statement. “However, individuals should weigh all of their options carefully before borrowing from their plan savings or reducing their contributions. Loans can undermine retirement savings and cause investors to miss out on earnings from rising markets. It's important to evaluate the benefits of taking a loan now against the need for those earnings to build long-term retirement security."

The top reason for taking out a loan from a retirement plan was to pay off debt (46%), and women were more likely than men (52% to 41%) to borrow money for this reason. Men were more likely (40% to 29%) to borrow money to pay for an emergency expenditure.

The money being removed from retirement accounts isn’t a small amount either. Nearly half (47%) of respondents said they borrowed more than 20% of their savings, and 9% borrowed more than half.

In February, Fidelity Investments had reported something similar. While the average 401(k) balance had doubled since March 2009 (when the market bottomed out) and reached a new high of $89,300, a third of participants cashed out when they left a job in 2013. Young savers between the ages of 20 and 39 were more likely to cash out (41%), and the average cash out value was nearly $16,000.

As Fidelity pointed out, those who chose to cash out their 401(k)s instead of leaving the money in the existing plan or rolling it into another tax-advantaged account were forfeiting years of potential investment growth. A 30-year-old cashing out $16,000 who ends up retiring at age 67 and living until age 93 could lose $471 a month in retirement income cash flow, according to Fidelity’s numbers.

"If loans are necessary to cover an emergency or the loss of a job, people should seek advice to minimize the loan's long-term impact on their retirement savings," explains Hassara. "It's a good example of why plan sponsors should make financial education and advice a core component of their plans."