Struggling With No Stimulus? Here’s When It’s OK to Dip Into Retirement Savings

Before you raid your retirement accounts, read this.

Millions of Americans have signed a petition requesting ongoing coronavirus stimulus checks as the pandemic continues to rage on. Lawmakers in D.C., however, appear focused on other priorities and are unlikely to deliver another payment to people's bank accounts despite the growing demands for one -- and despite the fact that many people continue to struggle.

If you're facing financial hardship in this difficult economic environment, you may be wondering if it's OK to tap into retirement savings. In most cases, doing so is a bad idea, as you could get hit with financial penalties and face the loss of potential returns. You'll make it harder to amass the nest egg you need if this happens.

But despite the downsides, there may be times when tapping into a retirement account isn't the worst idea in the world. So how can you tell if it's alright to raid your retirement fund? You'll want to make sure all of the following things are true before you dip into the money you've been saving for your later years.

1. You've exhausted other reasonable options

Taking money from a retirement account has serious consequences that can affect you in the long term. It's not a decision to be taken lightly -- and it's not a choice you should make if there are other alternatives available to you.

Before you withdraw from your retirement fund, think about taking some of these other steps instead:

• Using a 0% APR credit card, as long as you can pay off the card before the introductory rate expires
• Taking on a side hustle that you can do safely
• Selling unwanted items
• Reworking your budget so you can live on the funds available to you

Until you've explored other solutions that aren't likely to impact your future as much, you absolutely shouldn't access retirement funds. But if none of these options are available to you and you're stuck in a situation where you need money, then dipping into retirement savings may be OK.

2. The expense is a crucially important one

You never want to jeopardize your future financial security for a non-essential expense, so make sure whatever you are doing with the money is vital.

If you're tapping your retirement fund to avoid foreclosure, cover medical care you can't otherwise pay for, avoid repossession of the vehicle you use to get to work, or stave off another dire disaster, then raiding your retirement fund is the lesser of the two evils. In that case, you should move forward as long as you've explored other options first.

3. You're aware of the potential consequences

Finally, you need to make sure you understand why dipping into a retirement fund should be a last resort before you move forward.

If you take money out of a tax-advantaged account before age 59 1/2, you'll typically be hit with a 10% early withdrawal penalty. That means you lose some of your money right off the bat. You also miss potential returns if you can't put the money back. You may be able to mitigate some of these downsides by checking to see if you qualify for a hardship withdrawal that allows you to avoid penalties.

If you have a 401(k), your employer may also let you borrow from it. This allows you to avoid the penalty and the permanent loss of returns the money would have earned. However, if you can't pay back the borrowed sum on schedule, you could end up with the borrowed money being treated as a withdrawal. You'll also miss out on the returns the money would've earned during the repayment period.

If you're aware of these downsides, have a crucial expense to pay, and have no other options, it's OK to dip into your retirement savings. Just try to get back on track once your financial situation recovers post-pandemic.