Courtesy of Mish.
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
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