Before You Cash Out: Alternative to Draining Your 401(k)

Before You Cash Out: Alternative to Draining Your 401(k)

An Ounce of Prevention: Establish an Emergency Savings Account

Part of the problem is that the current financial planning system tends to divert funds employees need for short-term spending into long-term retirement savings, leaving nothing left for immediate emergencies, suggests Matt Fellowes, chief executive officer of financial guidance service HelloWallet. Fellowes suggests that in the current economy, many workers would be better advised to build an emergency savings account that avoids the risks associated with 401(k) plans before investing in retirement savings. Only after establishing an emergency fund should employees focus on retirement planning, he says. Opinions vary on exactly how big an emergency fund should be, and specifics will vary with your situation, but a widely-accepted rule of thumb recommends your savings should be at least enough to cover three to six months of living expenses, with retirees advised to have a year’s worth of funds available.

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