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Last Updated: July 16, 2024
By: Taylor Johnson

Retirement Plan Leakage

Retirement plan leakage refers to the premature withdrawal or borrowing from retirement accounts before reaching retirement age. This can include cashing out retirement accounts during employment or after separation, taking hardship withdrawals, delaying participation in retirement plans, or borrowing against the account balance. Leakage reduces the long-term growth potential of retirement savings and may lead to penalties, taxes, and decreased retirement income. While this issue affects workers across various sectors, certain groups may face unique challenges.

For those working in fields like non-profits or ministry, financial instability can play a key role in retirement plan leakage. Many individuals in these roles face lower salaries compared to their counterparts in other sectors, which can limit their ability to save for retirement. Additionally, irregular income or periods of financial uncertainty can make it harder to consistently contribute to retirement accounts.

The nature of work in these fields often involves a strong commitment to the mission of the organization, which can sometimes mean that personal financial goals, including retirement planning, may take a back seat. This may cause individuals to withdraw funds early when unexpected expenses arise.

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