A financial hardship could have you taking money out of your IRA or 401(k) – but you may pay the price
Emergency funds are crucial when someone is hit with a financial shock, like a job loss or health emergency, in part because it keeps them from dipping into their retirement accounts.
The paper focuses on the valuation of liquidity — put another way, how households view certain financial products and their access to that money in a quick and efficient manner. An ideal product would be widely available to households and have a price attached, which allows the account holder to decide and benchmark their worth against alternatives. People who have a higher valuation of liquidity are willing to take up pricier borrowing to spend today than tomorrow, the researchers said.
Some Americans are more likely to tap into their accounts than others, such as people in financially underdeveloped areas or in Black communities, the researchers found. This may be a result of a lack of access to credit sources — for example, affected areas saw more penalties from IRA withdrawals during the Great Recession as well, potentially because of credit restrictions.
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