Dear Reader,
Markets get the headlines, but retirement shortfalls often start with something quieter: a loan that doesn’t get repaid, a hardship withdrawal that never gets replaced, or a job-change cash-out that feels “temporary.” In today’s higher-cost environment, that temptation rises — and the math of compounding does not forgive it. The key question for investors isn’t “What did my 401(k) earn?” It’s “How much stayed invested?”
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Why This Matters
In plain terms, leakage breaks the most powerful engine in retirement planning: time. The IRS notes that most early retirement-plan withdrawals before age 59½ generally face an additional 10% tax unless an exception applies, on top of ordinary income taxes.
Here’s a conservative example: cashing out $10,000 at age 35 doesn’t just cost you $10,000. If that money would have compounded at a steady 6% for 30 years, it could have grown to roughly $57,000 by age 65. That loss is real retirement income — groceries, prescriptions, and property taxes — erased quietly.
Loans can be less damaging than withdrawals when repaid on time, but they still carry risk. The most common trap is job change: a loan that becomes due, gets “offset,” and turns into a taxable event when you least expect it.
Where Things Stand
Even as savers get higher annual contribution room — the IRS raised the 401(k) employee deferral limit to $24,500 for 2026 — more households are feeling budget pressure from everyday prices.
That’s why the guardrails matter:
Build a true emergency buffer first (aim for $1,000, then one month of expenses).
Treat 401(k) loans like debt, not “your own money”: borrow only for needs, set a payoff calendar, and keep contributions going if your plan allows.
Before any withdrawal, read the rules and tax reporting expectations in the IRS guidance on early-distribution exceptions and Form 5329.
On every job change, use a rollover checklist: confirm your new plan/IRA details, request a direct trustee-to-trustee rollover, and avoid checks made payable to you.
The Patriot Perspective
The market will rise and fall. Your discipline is the part you can control. Keep retirement money for retirement, build a modest cash buffer for life’s surprises, and make job-change rollovers a routine — not an afterthought.
Stay steady,
Kenneth Boyd
Author, Finance Writer, Former Investment Advisor & CPA