Another fascinating tale of Boomer mismanagement of their finances. To be fair, Gen X seems to have committed the same faux paux. Between 2000 and 2008 Americans sucked $3 trillion of mortgage “equity” out of their houses and spent it on cars, vacations, TVs, appliances, home theaters, plastic surgery, granite countertops, pools, more vacations, etc. They lived the lifestyle of the rich and famous. Fast forward to 2011 and there is no equity left in their houses. The housing ATM is out of order.
What is a good Boomer to do? You guessed it. Raid your 401k. The story below details the sad plight of the delusional American. They have an average 401k balance of $40,000 and 28% are borrowing against that balance. Click the link to the report to see the sordid details. Where is personal responsibility and preparing for the future in this story? Anyone who enters retirement with $40,000 of savings is in for a long hard slog. I hope they like the taste of dog food.
Is REW the new MEW? (Retirement Equity Withdrawal)
by CalculatedRisk on 5/18/2011 10:50:00 AM
Reader “Soylent Green is People” asks if Retirement Equity Withdrawal is replacing Mortgage Equity Withdrawal (MEW) for those in need?
Borrowing from retirement accounts has definitely increased. From CNBC two weeks ago: More Americans Raiding Retirement Funds Early
… 19 percent of Americans — including 17 percent of full-time workers — have been compelled to take money from their retirement savings in the last year to cover urgent financial needs, the Financial Security Index found.
And from a new study by Aon Hewitt: Leakage of Participants’ DC Assets: How Loans, Withdrawals, and Cashouts Are Eroding Retirement Income Note: “DC” is Defined Contribution – like a 401(k) plan.
As of year-end 2010, nearly 28% of active participants had a loan outstanding, which is a record high. Nearly 14% of participants initiated new loans during 2010, slightly higher than previous years. The average balance of the outstanding amount was $7,860, which represented 21% of these participants’ total plan assets.
Hmmm … $7,860 is 21% of total assets? That means the average total balance is less than $40,000 for participants who borrow from a DC plan.
Also – check out page 4 of the Aon Hewitt study. The 2nd graph shows that 32.8% of participants in the 40 to 49 age cohort have DC loans, and 29.0% in the 50 to 59 age cohort have loans. These people have next to nothing in their retirement plans and most will probably have to rely on Social Security if they ever retire.
Note: Politicians are trying to limit this borrowing, from Bloomberg: Senate Bill Would Limit Using 401(k)s as Rainy-Day Funds
My feeling is REW isn’t really the new MEW. The size is much smaller, and this borrowing is much more need related as opposed to buying bigger toys, or being used for home improvement. But as “Soylent Green is People” suggested in his email to me, this reliance on REW is “an indicator of financial peril”.
Kill Bill says:
Better for the boomer to raid the 401k afore Turbo Timmeh does.
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18th May 2011 at 3:18 pm
TeresaE says:
Yep, success.
Some are doing it smartly, repaying themselves while paying off higher interest debts.
Most are continuing to live the dream and squander the money.
At least those that have cashed out won’t be as pissed as the ones doing the “right thing” when the confiscations eventually come.
And come they will. Timmy has proven it by starting with the government pensions. In reality the pensioners are losing NOTHING, but precedent is now set and if you dare to object to having your savings stolen, they will pull this out to “prove” that the government “sacrificed” first.
Amazing how the plan seems to march on.
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18th May 2011 at 3:20 pm
Terry says:
“To be fair, Gen X seems to have committed the same faux paux.”
Sadly, yes. I consider them in a worse position if for no other reason that that they do not have the ex-Hippie skills of living on nothing.
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18th May 2011 at 3:24 pm
Kill Bill says:
The fact is that Bernanke or Geithner have no cure other than to create more debt ex nihilo
Our financial system is broken. It was designed back in the European era among feudal lands and monarchy.
It worked for, in terms of time, a short while, but clearly cannot continue without constant intravenous injections of fiat to support a zombie that never should have been.
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18th May 2011 at 3:58 pm
Welshman says:
Admin.,
You are right, they are not using the money on big ticket items. They are using the 401K raid to supplement their standard of living. Their house is underwater, their credit cards are maxed out,
savings gone, and their standard of living is going down the toilet. Tell me someone what type of happy ending is this going to have.
They are committing financial suicide, then they will want the government to take care of them. The government is insolvet.
If you would like a lesson in financial insecurity, go to Walmart May 31 at around 11:00 PM. At midnight the Government fills up 41,000,000 SNAP Cards.
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18th May 2011 at 4:07 pm
Dragline says:
Did somebody say “Soylent Green is People?”
http://www.youtube.com/watch?v=MiHbUaXL_gw
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18th May 2011 at 4:52 pm
SSS says:
“My goal is to piss off as many people as I can.”
—-Jim Quinn, upon launching TBP Version 3.0
This latest barrage of articles slamming Baby Boomers is starting to look like a fiendish plot. I had one of my operatives take a very recent clandestine photo of Quinn. He just sent me the result, and here is proof positive of what Quinn is up to………..no good.
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18th May 2011 at 5:11 pm
Steve Hogan says:
I’m forever amazed at the stupidity and irresponsibility of the average American. Then there’s the below average American….
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18th May 2011 at 5:25 pm
newsjunkie says:
My kitty told me to close out my 401k and spend it on him.
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18th May 2011 at 6:45 pm
KaD says:
US currency won’t be worth the paper it’s written on in a few years anyways.
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18th May 2011 at 7:14 pm
Administrator says:
SSS
Any post that bashes Boomers generates tremendous commentary. Part One of my five part series ended with 315 comments, while the next two generated less than 100 each. I’ll have to do some boomer bashing in Part 4. I don’t think Josey Wales would have liked Boomers. He would have spit tobacco juice on them.
PS I would kill for that much hair.
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18th May 2011 at 7:41 pm
llpoh says:
Admin – you need to combine boomer bashing with a 9/11 conspiracy plot and toss in a sprinkle of thirty blocks and for the finale suggest that all of SS/Medicare be abolished.
You would get millions of comments!
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18th May 2011 at 7:45 pm
cv51 says:
The ant works hard in the withering heat all summer long, building his house and laying up supplies for the winter…
The grasshopper thinks the ant is a fool and laughs and dances and plays the summer away…
Come winter, the ant is warm and well fed.
The grasshopper has no food or shelter, so he dies out in the cold.
MORAL OF THE STORY:
Be responsible for yourself!
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18th May 2011 at 7:56 pm
Pacer says:
cv51 – The ant/grasshopper story does play out that way, as long as the ants have hid their food deep down holes the grasshopper cannot find or enter. Otherwise the grasshopper raids the ants’ winter stock and they all starve by XMas. So the other moral of the story is: be responsible AND beware of those who aren’t.
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18th May 2011 at 10:12 am