We recently stumbled across a chart that can help convince your employees it’s a bad idea to borrow money from their retirement accounts.
Of course, some people don’t have a choice. If a spouse loses his/her job, the cash to pay the mortgage has got to come from somewhere.
But some workers use their 401(k)s like piggy banks, withdrawing money to pay for things not as critical as food and shelter that they didn’t budget for.
For those people, these figures we found over at The Motley Fool, an interesting little financial education and news site, should be enough to scare them out of that practice.
Let’s say an employee borrows $10,000 from their 401(k) for five years (the amount of time they can keep the money without incurring a penalty), it’ll have lost five years of potential growth.
That doesn’t sound that terrible to some people. But when you chart out what that actually means over the long haul, the results are that terrible.
Assuming an 8% annual growth rate:
- In 5 years $10,000 grows to $14,690
- In 10 it grows to $21,590
- In 15 it grows to $31,720
- In 20 it grows to $46,610, and
- In 25 it grows to $68,480.
That means if an employee’s $10,000 lost five years of growth due to a loan, in 20 years it would be worth nearly $20,000 less than it could’ve been — if the money had sat there untouched. Pretty substantial!
Source: “Step Away From That Growing Pile of Money,” Selena Maranjian, The Motley Fool, 6/13/11.