Paying for education is the top reason young investors have had to dip into their retirement accounts, according to the latest wave of E*TRADE from Morgan Stanley’s StreetWise quarterly tracking study of experienced investors.
As graduation season comes to a close, results of the study show the impact education costs have on investors just embarking on their investment journeys.
Of the nearly half (49%) of investors under the age of 34 that said they have withdrawn from a 401k or an IRA early, 20% said it was to pay for an education, followed closely by a medical emergency (19%).
Nearly two in three (63%) young investors said education costs or paying down student loans are barriers to saving for retirement, and they are looking for a lifeline. Over two in five (41%) said education reimbursement was one of the top three benefits an employer could provide beyond traditional health insurance.
“The rise of education costs has been a pervasive challenge, so it’s no surprise to see the toll it has taken on young investors,” Mike Loewengart, Managing Director of Investment Strategy at E*TRADE from Morgan Stanley. “While drawing down on retirement savings may be tempting when you have a long runway to retirement, young investors lose out on the power of compounding. Further, early withdrawals can come along with penalties, so understanding the magnitude of the decision is critical.”
Loewengart offered additional investing and saving considerations for recent grads, including focusing on savings first by building an emergency fund and considering paying down high-interest debt before creating a portfolio; leaning on employee benefits like student loan repayment and education reimbursement offerings while employer matches to retirement contributions and financial coaching tools assist building a strong financial future.
Finally, once young investors have a handle on their debt, Loewengart notes automatic investing can help them build their portfolios.
This wave of the Streetwise survey was conducted from April 1 to April 11 of 2022 among an online US sample of 913 self-directed active investors who manage at least $10,000 in an online brokerage account.
SEE ALSO:
• Women Cut Back on Raiding Retirement Funds Early
• How Many Americans Have Taken a Retirement Account Early Withdrawal?
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.