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R.I.P. Retirement: 28% Of Americans Are Raiding Their 401k Plans
Mike
Krieger
15
January, 2013
Via
Michael Krieger of Liberty
Blitzkrieg blog
,
This
trend has been in place since the financial crisis, but the fact that
it is accelerating is extremely disconcerting. First off, this
is not the kind of behavior that should be witnessed in an “economic
recovery.” Second, we need to remember the huge percentage of
Americans on food stamps and/or disability. As we have
discussed previously, many of them also have jobs. So
essentially, a wage and a
check from the government is still not enough to survive. They
still need to tap into a loan from their 401k plans.
From
the Washington
Post:
More than one in four American workers with 401(k) and other retirement savings accounts use them to pay current expenses, new data show. 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.
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.
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.
The most common way Americans tap their retirement funds is through loans, which must be repaid with interest. Those who withdraw money face hefty penalties. In most cases, they not only incur a 10 percent federal tax penalty but also pay income taxes. The costs are financially harmful to families even as money-management firms reap massive fees for handling retirement accounts that ultimately are not used for retirement.
Hint,
banksters win again.
In 1980, four out of five private-sector workers were covered by traditional pensions that paid them a fixed benefit based on their salary and length of service once they retired. Now, just one in five workers has a pension, leaving 401(k)s and similar retirement savings accounts as the primary vehicles for retirees to supplement their Social Security benefits.
But millions of Americans, caught between flat wages and high expenses for everything from sending children to college to making home repairs, feel as though they have little choice. The withdrawals have grown substantially in the wake of the financial crisis.
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.
Fellowes said workers would be better served by establishing emergency savings accounts that steered clear of the potential tax penalties, investment fees, and other risks and costs associated with having money in retirement accounts. Only after establishing an emergency savings fund, he said, should workers plow their money into retirement savings.
If
people did the above, then the financial parasites couldn’t take
their fees. Let’s not forget that many employers
automatically put people into these 401k plans without even asking
them. From the same article:
In 2006, employers were given broader latitude to enroll employees in 401(k)-type plans unless workers asked not to participate.
This
happened to me at Bernstein and I had to call up to tell them I
wanted out.
What
a joke this nation has become…
Full
article here.
"The
number of U.S. families struggling with poverty despite parents
being employed continued to grow in 2011 as more people
returned to work but mostly at lower-paying service jobs, an
analysis released on Tuesday shows."
"The
belt-tightening in American corporations that made relics of
pension plans, in-house cafeterias and even many holiday parties
is squeezing another victim: American Express Co.'s travel
business."
"The
showdown over the nation's debt ceiling could force the
government to consider drastic steps to manage its limited cash,
including delaying trillions of dollars of payments to
employees, Social Security recipients, contractors and others."
"Nearly
a quarter of funds U.S. workers stash in retirement
accounts each year are withdrawn to pay current bills and
meet other needs, a study indicates."
"Consumers
have been paying down debt, but walking away from more"
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