George Kamel - The Dangerous Trend That's Wrecking Retirements 🧨

Starting point is 00:00:05 New research shows that a record number of Americans are making a huge mistake with their money. And no, I'm not talking about buying tickets to see the Backstreet Boys residency at the sphere. That mistake is larger than life. Oh! Crowd goes wild. They'll edit that in post. I'm talking about the ultimate gut punch to building wealth. Early 401K withdrawals. Today, we're going to break down exactly what's happening.

Starting point is 00:00:29 Plus, you're going to learn why taking money out of your 401K early for any reason is a terrible, no-good, very bad idea. And of course, in George fashion, I'll tell you what to do instead. But first, I don't care who you are, where you're from, what you did, as long as you hit the like button and subscribe to the channel, no strings attached. I'll wait for you to get that one. Boys to men laying in their grave right now. Not rolling, just laying. I don't even think they're dead.

Starting point is 00:00:55 Well, if they're not dead, this stink'll kill them. Okay, here's what's going down. In 2024, almost 5% of 401K participants initiated a hardship withdrawal. And that stat has doubled since the pandemic. And with 70 million people investing in a 401K, 5% means we're talking about potentially over 3 million Americans making this mistake. And by the IRS definition, a hardship withdrawal is when you take money out of your 401K to pay for an immediate financial need. And it's usually exempt from any kind of penalty tax. So why are hardship withdrawals happening more than ever?

Starting point is 00:01:27 Well, I would argue it's not because people are getting poorer or more desperate for cash to cover emergencies. The real reason hardship withdrawals are becoming more common is that they've gotten a lot easier, like getting AI to write breakup text. Here's one. Hello, this is breakup. You are my person, but now you are not. The relationship has reached maximum capacity and must be deleted. I enjoyed the times we did dating.

Starting point is 00:01:50 Holding hands was medium. You have a face. I no longer feel the romance chemicals. Please do not cry unless you want to. Goodbye forever, or until next time. Love, formerly. That's actually not. But jokes on you guys, that's not even AI.

Starting point is 00:02:05 That's a direct quote from Elon. Which X, take a guess. No. It was me. Anyway, here's why hardship withdrawals are now easier than ever. Back in 2018, Congress removed several hoops that used to make them much more difficult to access. And on top of that, the IRS's current definition of immediate financial need is a little... Squishy.

Starting point is 00:02:26 Their definition doesn't just include actual financial hardships, like expense medical bills or a pending eviction. It also covers stuff like paying for college tuition and fees and making a down payment on a home, aka things that definitely are not emergencies. 401k withdrawals come in all shapes and sizes these days, and they're always a terrible idea for three main reasons. Reason number one, taxes. Approved hardship withdrawals are typically exempt from a penalty tax, but that's not going to stop Uncle Sam from reaching into your pocket. You see, a traditional 401K is a tax-deferred retirement plan, which means the money you contribute to a traditional 401K goes in tax-free.

Starting point is 00:03:02 And while that money's inside, like these cookies, the 401K serves as a shield that protects the money from taxes. But when you take the money away from the shield, it's exposed to Uncle Sam's grimy hands. And he is definitely among the 69% of men who don't wash their hands after toilet time. It's disgusting. Typically, folks with a 401k wind up paying those taxes in retirement, and it ends up being a good deal, since deferring the taxes left them with more money to grow over the years. But when you take the money out early, those taxes just wind up robbing your nest. egg. Oh, that's definitely not a gluten-free cookie. This is my last video. I won't have a cease.

Starting point is 00:03:42 Which brings us to the second reason hardship withdrawals are a bad idea. They steal from your future. The whole reason you put money into the 401k in the first place is so that your nest egg will be as big as possible to provide you a comfortable income once you retire. But when you take the money out early, the nest egg gets smaller and you unplug the power of compound growth. Because a 401k withdrawal all doesn't just mean your money is dwindling. It's also not growing anymore. That's called Stunted Growth. And I know something about that. Ask 6th grade George about stunted growth. It's a dark time when you cap out of 5-6. You're very sure. To put some numbers around this, let's use our Ramsey investment calculator to see how much damage this can do. So let's say your

Starting point is 00:04:19 current age is 30 and you want to retire at 65. And for the average 30-year-old, the balance in a 401k is $15,000. So that's what we're going to put in here for current investments. How much will I contribute monthly, zero. Let's say we just left that alone and we just let it grow for those 35 years with a 10% rate of return, which is the average for the S&P 500, and we would have almost half a million dollars in that one account. Now, let's say at 30, you decided to rob the nest egg of $5,000 for a hardship withdrawal. What would that do? Well, it would lower your balance to $10,000, and let's say you just left that alone for 35 years. What would that turn into? $326,000. Do you see what just happened there? You remove $5,000?

Starting point is 00:04:59 thousand dollars, but it didn't cost you $5,000. It cost you over $160,000 for that one mistake. That's rough, buddy. Moving on. Reason number three, this is a bad idea, the mindset trap. You might think you're just taking money from your 401k this one time, but then it's easy for that one time to turn into two times, maybe three times. And before you know it, your retirement account's got more holes in it than an H&M cardigan after one wash. So here's the deal. Personal finance is 20% head knowledge and 80% behavior. And the moment you start treating your retirement account like an ATM, you're not just making a bad financial decision, you're starting a bad habit.

Starting point is 00:05:37 Because after you raid it once, it gets a lot easier to do it again. And again. And again. Until one day, your retirement looks like asking your kids if you can crash on their futon. And let me tell you something about futons. I got minor scoliosis from sleeping on a futon one time. You try to retire on a futon. You will decease.

Starting point is 00:05:55 My back. So here's the thing. You got to reframe. how you think about your 401k. It's not your rainy day fund. It is your long-term lifeline, your future self's paycheck. So start treating it with the respect it deserves. Now, I fully recognize that money hardships are real, and it can be scary to face one without a game plan. But unless you're staring down the barrel of a bankruptcy or a foreclosure, this shouldn't even be on your radar as a solution. Instead, you've got to make a few key money moves now so that you're

Starting point is 00:06:23 not stuck scrambling the next time life throws you a curveball. I'm going to give you that list in just one second. But first, I'm going to give you something else. A way to fight back against the online data brokers that are out there selling your personal information. And I do that with DeleteMe, one of the sponsors of today's video. Delete Me combs through hundreds of shady websites to clean up your digital footprint to make sure that your personal info stays personal. And they're going to send you ongoing reports with the nitty-gritty details of what they've done and how much time they've saved you. And so far, they've saved me 86 and a half hours, which is more time I can spend reminding Uncle Sam to wash his grubby little hands.

Starting point is 00:06:57 right now, you can get 20% off their annual plans by going to join deleteme.com slash George, or click the link in the description below. Okay, here's how to stay on solid ground without draining your 401K. First up, build a real emergency fund. Repeat after me. My 401K is not my emergency fund. I should leave my 401k alone. I need to stop pretending that drinking oat milk makes me interesting.

Starting point is 00:07:21 Gotcha! You weren't thinking it was coming, but it came for you. But for real, treating your 401k as an emergency fund, It's like treating your dentist as a therapist. Wrong tool for the job. Also, awkward. So if you don't have a real emergency fund, start by saving up a starter $1,000 emergency fund,

Starting point is 00:07:38 and eventually work your way to saving three to six months of expenses once you're debt-free. And put that cash in a high-yield savings account so that it's liquid, safe, and easy to access. Next, cut expenses and create margin. If you're living paycheck-to-paycheck and you need some extra margin just to get by, it's time to get on a scorched earth budget.

Starting point is 00:07:56 cancel the subscriptions you forgot you had. No more restaurants or $7 coffees. And that car you're paying $800 a month for might be time to sell it. It's not a flex if it's wrecking your budget. This is about survival mode, people. It's not forever. It's just for now.

Starting point is 00:08:09 You're trading comfort today for peace tomorrow. And trust me, margin feels way better than Hulu with no ads. And you know I love Hulu with no ads. Up next, increase your income. Now, I'm not telling you to join an MLM and start selling protein shakes to your Facebook friends. I'm saying it's time to get scrappy.

Starting point is 00:08:25 Pick up some extra shit. work overtime, find a side hustle, sell stuff that's collecting dust in your garage. This is not about becoming a hustle, bro. It's about creating the breathing room that you need to stop living one overdraft away from disaster. And if you want some help with this, I'll leave a link in the description below to my free side hustle quiz that will help you decide which ones are the best fit for your situation. And finally, the last step, and one of the most important, get out of debt. The reason most people look at their 401k in desperation is because it's the only cash they haven't already spent between paying the bills

Starting point is 00:08:54 and making payments on cards, credit cards, and student loans. The more you rely on debt, the less control you have over your money. And if that's where you currently are, make today the day, you start putting an end to it. Stop borrowing money. When you don't owe MasterCard or Sally Mae, you suddenly have options and freedom. So bottom line, don't sacrifice your future just because your present is uncomfortable. Short-term pain leads to long-term peace, and peace beats panic every single time. Now, let me give you something else to keep in mind when it comes to 401Ks.

Starting point is 00:09:22 They only grow if you put money into them. And that's why I made this video breaking down how much money you should have in your 401k based on your age. So keep watching to check it out or click the link in the description. And if you want to finally break free from broke and never have to turn to debt again, be sure to check out my book Breaking Free from Broke. There's also an audiobook version read by yours truly that I must say is fabulous. So check it out with the link in the description.

Starting point is 00:09:46 That's it for today. We'll see you guys next time. Hey, real quick before you go, we just launched an audience survey and it would mean the world if you could take the time to fill it out. It's going to help us make more content to help you get better with money. It's in the link in the description below.

George Kamel - The Dangerous Trend That's Wrecking Retirements 🧨

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