A new study finds that “leakage” from 401(k) and IRA accounts can reduce a person’s retirement wealth by as much as 25% and argues that changes are needed in these savings plans in order to plug the holes.
The report, from the Center for Retirement Research at Boston College, notes that, in 2013, the typical working household with a 401(k) approaching retirement had only $111,000 in a 401(k) and individual retirement account.
One big reason for that modest balance: the ability to tap those accounts during one’s working years. That results in “leakages,” which, in turn, “erode assets at retirement,” the report notes.
The study defines leakages as “any type of pre-retirement withdrawal that permanently removes money from retirement savings accounts.” Such withdrawals can occur in three ways:
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