Posted on 01/16/2013 3:13:05 PM PST by Kaslin
At an increasing rate, even during the alleged recovery, consumers are tapping their 401Ks to pay current bills according to a study by advisory firm HelloWallet as describe in the Washington Post article 401(k) breaches undermining retirement security for millions.
A report due out this week from the financial advisory firm HelloWallet found that more than one in four workers dip into retirement funds to pay their mortgages, credit card debt or other bills. Those in their 40s have been the most likely culprits — one-third are turning to such accounts for relief.
The withdrawals, cash-outs and loans drain nearly a quarter of the $293 billion that workers and employers deposit into the accounts each year, undermining already shaky retirement security for millions of Americans.
Fresh data from Vanguard, one of the nation’s largest 401(k) managers, show a 12 percent increase in the number of workers who took loans against their retirement accounts or withdrew money outright since 2008.
In 2010, 28 percent of participants reported having an outstanding loan against their retirement accounts, an all-time high, according to a survey of 110 large employers by Aon Hewitt, a human resources consultancy. And nearly 7 percent of employees took hardship withdrawals that year — roughly a 40 percent increase since the recession, while 42 percent of workers cashed out their plans rather than rolling them over when they changed jobs.
“401(k)s are not being used for retirement by a large and growing share of workers because they are misaligned with the very basic financial problems most workers face and must address,” said Fellowes of HelloWallet, which provides benefits advice to companies.
Using data from the Federal Reserve’s Survey of Consumer Finances and the Survey of Income and Program Participation, conducted by the Census Bureau, the report said 30 percent of households earning less than $50,000 a year had cashed out a retirement plan for non-retirement purposes. Only 12 percent of households earning between $100,000 and $150,000 a year and 8 percent of those earning more than $150,000 a year have cashed out a retirement account, the report said.
“The investment advice out there needs to recognize that a large share of participants is not going to use the money for retirement, so they should not be exposed to risky investments,” Fellowes said. “There is no investment adviser in the country who would put workers in the stock market if they were told the money being invested was for short-term needs.”Mortgage Connection?
The Washington Post article failed to note "why" people were tapping their 401Ks.
I suspect, but cannot prove, that many low-income households are desperately clinging to their underwater houses, from which they would be better advised to seek council, then walk away.
Higher income groups seem to have less aversion to walking away than those who struggled all their lives to get a home, only to get one at exactly the wrong time.
Dead-Fish Assets
The mentality "My house is the only thing I have" is tough to fight. However, the reality is many homes are worth less than zero because of underwater situations.
Unfortunately, the financial industry is geared to giving the worst advice to the least well off. Counseling groups (typically bank-sponsored) encourage people to keep their dead-fish "assets", best flushed down the toilet.
There are other possible reasons of course, and right at the top of the list is car loans, another depreciating asset.
Lose Your Job, Then You're in Trouble
I do not advise tapping your 401K for numerous reasons, but right at the top of the list is the lost-job nightmare.
Please consider these problems as excerpted from the 401K Calculator article Everything You Need To Know About Borrowing Against Your 401K.
And what, pray tell, is retirement age?
The age when you can receive 401k distributions without penalty.
Wait a minute, the government decides about the penalty. So you trust the government to decide when we should retire. What if they raise it? What if they decide NEVER is a good time for you to retire?
“Why else would you rather lose 40% of the account rather than make 5%?”
““Yes Mr Bob, if you invest with me, I can promise a -40% return. You are guaranteed to lose money with me””
Dinner time now...between my legs...have at it.
How about you treat people with a bit more RESPECT on this sit, particularly when you don’t know their details?
In my case, I can PROMISE you that I will, at least, be in the 25% bracket when I retire, simply because I have a REAL pension coming to me. So your 40% hit just dropped to 15%. From there, it winds up closer to 10%, due to my specifics.
You may be MORE THAN HAPPY to have your IRAs turn into “Annuities”, but I am not, and I will take steps, even costly ones, to NEVER let that happen. I will soon OWN my house here in Texas and NO ONE from the government will be able to do jack about it.
“Yep. I wish we were closer to having ours paid off and could do the same. I’m so jealous!”
Yea, but you’re so cool, you can do it. Just STOP spending money on ANYTHING that doesn’t pay for itself. For example, the McDonald’s Dollar Menu, at least for their McDouble, in my book, pays for itself (not just the cost of food, but the energy to cook it and the cost to clean up)...so good investment. But fries, and especially, drinks, NO WAY. And don’t even get near eating out (other than McDoubles) during work, or Starbucks.
It’s a lifestyle change, but only for a short time. Live like crap...look at what it really costs for food that good enough to live on...and go with that. Pasta and rice is still cheap. Mix it with some other (better) stuff and you’re set.
Keep at it!!! At 30K you’re in the HOME STRETCH. Push it through and the payment is GONE...maybe very soon (and make sure they send you the lien release).
“Dinner time now...between my legs...have at it.”
I’m a guy. You may be into having sex with men but I am straight. So, you need to move to the next guy.
Just responding in kind, no prob. if you’ve changed from yesterday.
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