Twenty-nine percent of Americans have borrowed from their retirement savings, and 13% have borrowed on more than one occurrence. While it appears to be a good source of “low interest” financing, a single $30,000 401(k) loan could result in an opportunity cost of $25,000 in compounded returns (assuming the loan is repaid in 5 years). Potential losses are significantly greater if 401(k) contributions are reduced or suspended to accommodate for loan payments. It is essential to financially prepare for emergencies and major expenses to avoid the costly reparations of borrowing from retirement savings. As we welcome 2017, a New Year’s resolution to increase emergency and large purchase savings may be most pertinent.

Sources: TIAA-CREF 2014 Borrowing Against Your Future Survey

To read more about 401(k) loans, click here.