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Bank Savings Low, Americans Dip Into Retirement Savings

Brian O'Connell

NEW YORK (TheStreet) -- Average bank savings accounts are up since the Great Recession, but not enough to keep Americans from struggling to make ends meet.

"Consumers are currently saving about 4.5% of their after-tax incomes, in line with the average of the past decade," says Michael Gregory, director of U.S. economics at BMO Capital Markets. "While this is below the more than 6% savings rate in the wake of the recession -- as households worked hard to repair their balance sheets -- it remains well above the lows of around 2.5% that we experienced during the housing bubble period."

While Americans struggle to creep back up to that pre-recession 6% savings level, the job will be that much more difficult if consumers continue to tap into a bad financial habit: dipping into retirement savings for everyday needs.

TIAA-CREF says that 29% of Americans have taken out a loan from their retirement plans, and 44% of that figure say they regret it. Women are more likely than men to take from their retirement savings, by a measure of 52% to 41%.

Also see: How to Keep Inflation From Killing Your Retirement

Retirement savers have many reasons for breaking into savings, with "paying off debt" the No. 1 reason, followed by paying for emergency expenditures.

Whatever the reason, it's a direct threat to retirees' financial health. By using retirement plans to pay current financial obligations, Americans erode retirement plans and risk having to pay a 10% levy on the loan when they take cash out of a 401(k) or individual retirement account.

And, as TIAA-CREF points out, Americans who take out retirement loans have a bad habit of contributing less to their long-term savings; 57% of U.S. adults who broke into their savings actually decreased their contribution rate during the payback period.

"Too many people have struggled since the 2008 financial crisis and have looked at loans from their retirement plans as a way to ease financial stress," says Teresa Hassara, executive vice president of TIAA-CREF's Institutional Business. "Individuals should weigh all of their options carefully before borrowing from their plan savings or reducing their contributions."

Also see: Nearly 75% of Our Middle-Aged Have No Plans to Retire

But it's future financial opportunities where plan borrowers really miss out, Hassara says.

"Loans can undermine retirement savings and cause investors to miss out on earnings from rising markets," she says. "It's important to evaluate the benefits of taking a loan now against the need for those earnings to build long-term retirement security. Working with a financial adviser can help people make the best decision for their life stage and retirement goals."

TIAA-CREF has an interesting idea on how to keep Americans away from their retirements accounts, or at least limit the loan attempts. The group says that financial institutions should limit retirement plan loans to three individual loans over the course of a lifetime.

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