Career 01 March 2017
You know the expression about something being too good to be true? That’s the case when it comes to borrowing from your 401(k). This might seem like a good idea when it comes to making a large purchase or paying off debt, but there are consequences. You are not just borrowing from yourself. Because of the effects of compound interest, you’re actually borrowing from your future self, and robbing yourself of the blissful retirement you deserve. And why would you want to do that?
If you are thinking of borrowing from your 401(k), here are some important things to consider first.
You’re Missing Out on Money
Interest rates on 401(k) loans can be very appealing. You have the ability to borrow your own money and pay interest to yourself rather than a bank. Seems like a good deal, right? But not only are you missing out on the effects of compound interest, but the market may end up making money.
What this means is when you take out a loan you’re actually selling your assets. Then, when you go to repay your loan, you may end up buying shares in a fund at a higher price.
It is also important to note that if you’re unable to repay your loan within the time frame allowed, your loan will be considered an early withdrawal. This mean you will pay a 10% penalty if you are under the age of 59 ½ and have to pay extra income tax.
You Get Taxed Twice
For a traditional 401(k) plan, you make contributions with pre-taxed dollars. You won’t actually pay any taxes until you withdraw from your account as income during retirement. However, by borrowing from your fund, you will effectively be taxed twice. This is because you’d be paying back the loan with after-tax dollars. Then, when you wish to withdraw during retirement, you will be taxed again.
You Can’t Make Contributions Until the Loan is Repaid
Typically, most 401(k) plans will not let you continue to contribute money until you have repaid the full amount you have borrowed. Since this could take years, this means missing out on years of potential contributions (and the effects of compounding interest). You will miss out on the growth and interest you would have accumulated had you just left your money where it was.
It Could Be Risky
If for some reason you stop working or are let go by your employer, you may be required to repay the loan in full within 60 days. If you cannot meet the payment obligation, your loan will be considered an early withdrawal and you’ll have to pay the 10% penalty as well as income taxes! Talk about a big blow to your bank account!
You’re Stealing from Yourself to Pay Someone Else
By using your 401(k) to pay off debt, you are essentially just moving your debt around, as you will still have a loan that needs repaying. Some see this as a better option than paying a bank because interest rates are lower. However, even if you pay your loan back on time, you will have lost out on maximizing the effects of compounding interest. You are really just robbing from your future self.
Now you can see why taking a loan on your 401(k) may not actually be a great idea. While it may seem like an easy way to access immediate funds, you’re only hurting yourself. Instead, make a plan to save for a big purchase or develop a debt repayment plan that doesn’t involve needing to dip into your 401(k). With proper planning and a little patience, there are usually ways to reach your goals without compromising your future.
3 Min Read
With a lack of certainty surrounding the future, being and feeling healthy may help bring the security that you need during these unpredictable times.
When it comes to your health, there is a direct relationship between nutrition and physical activity that play an enormous part in physical, mental, and social well-being. As COVID-19 continues to impact almost every aspect of our lives, the uncertainty of the future may seem looming. Sometimes improvisation is necessary, and understanding how to stay healthy and fit can significantly help you manage your well-being during these times.
Tip 1: Communicate with your current wellness providers and set a plan
Gyms, group fitness studios, trainers, and professionals can help you to lay out a plan that will either keep you on track through all of the changes and restrictions or help you to get back on the ball so that all of your health objectives are met.
Most facilities and providers are setting plans to provide for their clients and customers to accommodate the unpredictable future. The key to remaining consistent is to have solid plans in place. This means setting a plan A, plan B, and perhaps even a plan C. An enormous amount is on the table for this coming fall and winter; if your gym closes again, what is your plan? If outdoor exercising is not an option due to the weather, what is your plan? Leaving things to chance will significantly increase your chances of falling off of your regimen and will make consistency a big problem.
The key to remaining consistent is to have solid plans in place. This means setting a plan A, plan B, and perhaps even a plan C.
Tip 2: Stay active for both mental and physical health benefits
The rise of stress and anxiety as a result of the uncertainty around COVID-19 has affected everyone in some way. Staying active by exercising helps alleviate stress by releasing chemicals like serotonin and endorphins in your brain. In turn, these released chemicals can help improve your mood and even reduce risk of depression and cognitive decline. Additionally, physical activity can help boost your immune system and provide long term health benefits.
With the new work-from-home norm, it can be easy to bypass how much time you are spending sedentary. Be aware of your sitting time and balance it with activity. Struggling to find ways to stay active? Start simple with activities like going for a walk outside, doing a few reps in exchange for extra Netflix time, or even setting an alarm to move during your workday.
Tip 3: Start slow and strong
If you, like many others during the pandemic shift, have taken some time off of your normal fitness routine, don't push yourself to dive in head first, as this may lead to burnout, injury, and soreness. Plan to start at 50 percent of the volume and intensity of prior workouts when you return to the gym. Inactivity eats away at muscle mass, so rather than focusing on cardio, head to the weights or resistance bands and work on rebuilding your strength.
Be aware of your sitting time and balance it with activity.
Tip 4: If your gym is open, prepare to sanitize
In a study published earlier this year, researchers found drug-resistant bacteria, the flu virus, and other pathogens on about 25 percent of the surfaces they tested in multiple athletic training facilities. Even with heightened gym cleaning procedures in place for many facilities, if you are returning to the gym, ensuring that you disinfect any surfaces before and after using them is key.
When spraying disinfectant, wait a few minutes to kill the germs before wiping down the equipment. Also, don't forget to wash your hands frequently. In an enclosed space where many people are breathing heavier than usual, this can allow for a possible increase in virus droplets, so make sure to wear a mask and practice social distancing. Staying in the know and preparing for new gym policies will make it easy to return to these types of facilities as protocols and mutual respect can be agreed upon.
Tip 5: Have a good routine that extends outside of just your fitness
From work to working out, many routines have faltered during the COVID pandemic. If getting back into the routine seems daunting, investing in a new exercise machine, trainer, or small gadget can help to motivate you. Whether it's a larger investment such as a Peloton, a smaller device such as a Fitbit, or simply a great trainer, something new and fresh is always a great stimulus and motivator.
Make sure that when you do wake up well-rested, you are getting out of your pajamas and starting your day with a morning routine.
Just because you are working from home with a computer available 24/7 doesn't mean you have to sacrifice your entire day to work. Setting work hours, just as you would in the office, can help you to stay focused and productive.
A good night's sleep is also integral to obtaining and maintaining a healthy and effective routine. Adults need seven or more hours of sleep per night for their best health and wellbeing, so prioritizing your sleep schedule can drastically improve your day and is an important factor to staying healthy. Make sure that when you do wake up well-rested, you are getting out of your pajamas and starting your day with a morning routine. This can help the rest of your day feel normal while the uncertainty of working from home continues.
Tip 6: Focus on food and nutrition
In addition to having a well-rounded daily routine, eating at scheduled times throughout the day can help decrease poor food choices and unhealthy cravings. Understanding the nutrients that your body needs to stay healthy can help you stay more alert, but they do vary from person to person. If you are unsure of your suggested nutritional intake, check out a nutrition calculator.
If you are someone that prefers smaller meals and more snacks throughout the day, make sure you have plenty of healthy options, like fruits, vegetables and lean proteins available (an apple a day keeps the hospital away). While you may spend most of your time from home, meal prepping and planning can make your day flow easier without having to take a break to make an entire meal in the middle of your work day. Most importantly, stay hydrated by drinking plenty of water.
Tip 7: Don't forget about your mental health
While focusing on daily habits and routines to improve your physical health is important, it is also a great time to turn inward and check in with yourself. Perhaps your anxiety has increased and it's impacting your work or day-to-day life. Determining the cause and taking proactive steps toward mitigating these occurrences are important.
For example, with the increase in handwashing, this can also be a great time to practice mini meditation sessions by focusing on taking deep breaths. This can reduce anxiety and even lower your blood pressure. Keeping a journal and writing out your daily thoughts or worries can also help manage stress during unpredictable times, too.
While the future of COVI9-19 and our lives may be unpredictable, you can manage your personal uncertainties by focusing on improving the lifestyle factors you can control—from staying active to having a routine and focusing on your mental health—to make sure that you emerge from this pandemic as your same old self or maybe even better.