(Bloomberg Politics) — Marco Rubio’s approach to personal finance could make some retirement advisors cringe.
The Florida Senator and Republican presidential candidate has cashed out retirement savings early, sold a home at a loss and spent money on luxury goods while still holding student debt.
“The Rubios are no different than a lot of American families,’’ said Timothy Steffen, director of financial planning at Robert W. Baird & Co. in Milwaukee. “They have shown over and over again the perils of living beyond your means.’’
Rubio, 44, liquidated a $68,000 retirement account, according to reports in the Associated Press and New York Times. Financial planners usually tell clients to tap into 401(k)s or individual retirementaccounts only as a last resort. That’s because of the tax-free growth they offer during working years and the hefty penalty usually charged for withdrawals before age 59 and a half.
The reality is, 401(k)s and IRAs have become the go-to emergency savings accounts for many Americans since the financial crisis. In 2011, 5.7 million tax returns, or about 4 percent of all U.S. households, reported paying penalties on early withdrawals from retirement accounts, according to Internal Revenue Service data. The IRS collected $5.7 billion that year from penalties, meaning that Americans took out about $57 billion from retirement funds before they were supposed to.
Another group of Americans are tapping their 401(k)s through loans when they need to buy a home or endure another type of financial pinch. About 22 percent of Americans had loans outstanding from their 401(k)s as of March 31, according to Fidelity Investments, the largest provider of the plans.
The national picture for student-loan debt is even worse. Only 37 percent of borrowers are current on their loans and actively paying them down, according to a report by the Federal Reserve Bank of New York in April. About 17 percent are in default or delinquency and the bills continue to mount because of the ever-rising cost of college and graduate school. Rubio has paid off $150,000 in student loans, his campaign said today in a statement.
Rubio isn’t alone when it comes to losing money on a real estate investment, especially in Florida.