The Cost of Borrowing from Your Retirement Consider the Alternatives Before Tapping Your Savings Are you thinking about withdrawing some money from your retirement savings account to buy that new car you admire or treat yourself to a nice vacation? You may think, "I'll have time to make it up." Well, think again. The cost of withdrawing from a retirement savings plan can be much greater than people realize. Just Say "No" to Short-Term Demands Meet Jeff. At the age of 30, Jeff begins contributing 8% of his salary to his company's savings plan. When he starts, his annual salary is $30,000 and he receives a 3% raise each year. Jeff puts money in for 30 years and earns about 8% each year on his investment.* Let's say that after 10 years Jeff wants to buy a bigger house and decides to withdraw money from his savings plan to help with the down payment. His savings plan at that point is approximately $43,000. He thinks that taking out $10,000 can't hurt him that much in the long run; after all, he still has 20 years until retirement. Up front, Jeff has to pay a 10% early-withdrawal penalty and 28% federal income tax on the money he withdraws. Right away, the $10,000 withdrawal has cost Jeff $3,800 ($1,000 + $2,800). *Assumption: 8% Rate of Return. Your actual rate of return will depend on asset allocation, funds selected and actual performance from now until retirement. This hypothetical example is for illustration only. The rates of return mentioned are not intended to reflect the performance of any actual investment. Investments do not typically grow at an even rate of return. Actual returns may result in a gain or a loss. The Cost Adds Up Over Time Based on these assumptions, Jeff's account balance when he reaches retirement 20 years later would be about $360,000 before taxes. But what if he hadn't taken out the $10,000 when he was 40? The following chart shows that if Jeff hadn't touched his retirement savings, his account balance would have been more than $405,000. The long-term cost of the withdrawal was $45,000. Combined with the immediate cost of $3,800, that's a total cost of almost $50,000 for withdrawing just $10,000. The High Price of Early Withdrawal Always bear in mind that your retirement savings plan is intended to be a long-term investment for the benefit of your retirement years. A loan from your retirement savings can make sense if you have no other options available at the time and an important reason for withdrawing money. If you're looking for tax relief and you qualify, speak to your tax advisor or financial professional and consider an alternative like a home equity loan. Or, depending on interest rates, consult with your banker about a traditional loan, or tap into your personal savings. All of these solutions have an impact on your finances, but taking a loan from your retirement savings plan may come at a much greater cost at a time when you have a real need for the money. Fund objectives, risks, charges, and expenses should be carefully considered before investing. A prospectus containing this and other important information can be obtained by calling (866) 676-7680 or by visiting this page on russell.com. Please read the prospectus carefully before investing. Copyright © Russell Investments 2005. All rights reserved. This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments. It is delivered on an as is basis without warranty. Russell Investment Group is a Washington, USA corporation, which operates through subsidiaries worldwide, including Russell Investments, and is a subsidiary of The Northwestern Mutual Life Insurance Company. Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional. Securities products and services offered through Russell Financial Services, Inc. (formerly Russell Fund Distributors, Inc.), member FINRA, part of Russell Investments. For information on the Financial Industry Regulatory Authority, go to www.finra.org. RFD 05-5601. First used: November 2005.			RELATED Articles Saving for Retirement Understanding Compounding Developing Your Investment Strategy Tax Strategies Planning for Retirement Checklist Printer friendly version of this page Send feedback or comments Site Search

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