If the storyline being proliferated by the MSM and your politician leaders was true about a recovering economy, job creation, housing recovery and stock market boom, then why are a record number of Americans tapping their 401k plans to make ends meet? Inquiring minds want to know. I know people who are borrowing against their 401k plans to meet current obligations. How many of your neighbors are doing the same thing to maintain the appearance of normalcy? Are your neighbors tapping their 401k plans to make those lease payments on the BMW? Are they tapping that 401k plan so they can continue to eat out twice a week and keep shopping at Neiman Marcus? Or are they tapping their 401k plans to fill up their 10 year old Hondas and put food on the table?
Whichever scenario fits, they will have much less than they need during their retirement years. That is a no brainer. With 10,000 people per day turning 65 for the next 19 years and 40 year olds tapping their 401ks to get by, the chances of an economy growing above 2% over the next two decades is ZERO. Put that into your CBO model and calculate the national debt in 10 or 20 years.
Maybe this is actually rational thinking on the part of those withdrawing funds, since the government will be coming for those funds in the near future anyway.
More than 25 percent of Americans raiding 401(k)s to pay bills
U.S. workers are tapping into nearly a quarter of the $293 billion placed into their retirement savings each year to pay for mortgages, credit cards and other debts, according to a report from financial advisory firm HelloWallet. Those in their 40s are the most frequent raiders, with about one-third using their 401(k)s to pay current bills.
Other studies bear out those results. Vanguard, an investment-management group, said American workers withdrawing money from 401(k)s or taking out loans against their accounts jumped 12 percent since 2008.
Draining funds that ensure security when workers retire has raised new worries about the shaky foundation for older Americans.
Many workers use loans that incur large penalties to dip into retirement accounts. In addition to paying income taxes, many are hit with a 10 percent tax penalty.
Matt Fellowes, chief executive of HelloWallet, said there are few winners in that situation.
“What you have is 401(k) participants voting with their wallets, saying they would much rather use their money for other purposes,” Fellowes told the Washington Post. “I don’t think this can be ignored. Employers are dramatically overpaying for retirement, but it is not benefiting the employee.”
ThePessimisticChemist says:
Guys guys guys….it doesn’t matter.
Because if we cut spending on any entitlement programs.
It might kill people.
PRINT ON B-B-B-BENNIE AND THE INKJETS!
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18th March 2013 at 1:40 pm
Working man's chest surgeon says:
I wonder how many are raiding their 401ks bc they are worried it will be stolen before they retire? Exhibit A: Cyprus.
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18th March 2013 at 2:04 pm
IndenturedServant says:
What point is there to having a 401k or any kind of dollar denominated IRA if the value of the fiat dollar is headed for its intrinsic value of zero? Maybe I’m a bit shortsighted but regardless of how much you have in your retirement account, it will become worthless as the dollar continues is long slow descent into worthlessness. Add in the almost guaranteed spectre of looming “taxes”, “fees”, conversions to treasury debt, outright theft for the common good, and a host of shit yet to be dreamed up, and taking the tax and penalty hit of early retirement account withdrawals sounds like the only sane move. I believe that with so many people tapping into their retirement accounts, they may soon make it impossible to do so even if you are willing to take the hit.
I would have to become unemployed to access my 401k. I’m considering getting the paperwork in order now just in case my job goes away so that I can drain the account myself if my job goes away.
I’d be very interested to hear what others (especially admin) think about the wisdom of leaving IRA accounts alone in this environment? Does anyone truly believe their money will be there in 5, 10, or 20 years? I sincerely believe we are Cyprus but it might still be a few years before they apply the Cypriot Haircut here.
My brother calls situations like this a “soup sandwich”.
I_S
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18th March 2013 at 2:21 pm
Administrator says:
IS
I haven’t touched my IRA. I’m not willing to take the 40% haircut for withdrawing it early. I have it mostly invested in Hussman’s funds and CEF.
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18th March 2013 at 2:29 pm
David says:
Abolish the Fed. Abolish the income tax. Establish a wealth-based monetary system. Until these things are done poverty will continue to knock on every door for generations.
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18th March 2013 at 2:32 pm
ThePessimisticChemist says:
@David – I think its too late to go back on the gold standard, however I do think its quite possible for us to write into the Constitution that the money supply MUST have some basis in reality.
This fake it until you make it crap has got to go, before these bastards drown the world in blood.
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18th March 2013 at 2:36 pm
Thinker says:
I’m glad you made this it’s own post, Jim. I’d posted it as a comment back on March 7th, but it’s worth noting it’s a bigger deal.
I cashed out one of my 401Ks from a previous job in December. I’m investing in a new farm, as many of you know, and I’m making all my investments in cash. Figured it was better put to use growing food and a future retirement income for me than sitting there, waiting for Wall Street to find a way to take it. And I wanted to get it out before the tax rates changed this year. Considered the 30% penalty to be well worth it, when you consider the risk in the market versus the risk of almost 800 fruit trees that will produce for 20-30 years. Both are risky, mind you — I just know which one I prefer.
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18th March 2013 at 2:49 pm
David says:
ThePessimisticChemist
“@David – I think its too late to go back on the gold standard” ——– I disagree.
No paper (fiat money) has ever survived. Gold has been money for five thousand years. It will always be money. The present day bankers would have you believe that paper notes are money but what they really are is currency. Currency is not money. Money doesn’t depreciate, currencies do. Read FOFOA—Freegold.
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18th March 2013 at 3:08 pm
Maddie's Mom says:
I just can’t seem to get my dh excited about Cyprus.
This morning over coffee, I’m talkin’ Cyprus, he’s talkin’ the weather. He won’t even comment on the situation. Normalcy bias has him by the….
So I’m spending the day furiously adding to existing preps.
Anyone else doing the same?
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18th March 2013 at 3:25 pm
IndenturedServant says:
admin, can you envision a time or situation where you would be willing to take the haircut?
I think we’re still a couple of years away from Greece/Cyprus. With actual inflation in food, clothing and energy, the things you need now AND in retirement, approaching if not exceeding 10% each year, earning anything less than that is just keeping pace.
I_S
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18th March 2013 at 3:30 pm
Administrator says:
IS
I do envision a time when I would drain the IRA. I could have it in my credit union account within 3 days. The question would be what do I do next? Do I go to the branch and ask for it in cash?
With my 403b I’ve been considering taking out the maximum loan possible so I could have the cash in hand rather than have it where the Feds could grab it.
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18th March 2013 at 3:53 pm
ThePessimisticChemist says:
@David – I think hitching the US currency to hard assets makes sense, however I’m a fan of setting the dollar so that it MUST be within a certain range of the price of gold.
Stopping printing would be the first step to this.
Of course, stop printing money is the first step in most of my lists to make the US a better place.
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18th March 2013 at 4:05 pm
Anonymous says:
@Maddie’s Mom”: It sounds very much like your hub has you in the same place that Teresa E.’s old man has her (i.e. totally uninformed and uncaring and feels “it can’t happen here!”).
My sweetie is __beginning__ to pay attention after low these many years of me trying to get her to do it.
(and she is essentially a financial illiterate except for what I keep drilling into her mind).
Get him a copy of Jared Diamond’s “Collapse” and see if you can get him to read it.
MA
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18th March 2013 at 4:08 pm
IndenturedServant says:
admin, many of the things I read indicate that at some point we are all going to have to fore-go ROI and focus on preservation of current assets. However, I think there are many unconventional ways to still get ROI.
My thought would be to make the withdrawal now and have it deposited to my account and begin weekly cash w/d each week. I’d try to keep w/d under the reporting limit.
For me, there is no way in hell I’d want to stay on the east coast but your entire life is invested there so you may see your options as limited. As for what to do with the proceeds………I’d make as many up front preps as possible to front run inflation, buy as much PM as I’m comfortable with, and invest in durable goods to ease my descent into hell. If I were to lose my job, I believe I’d move closer to Boise, ID to be near my two brothers and parents. My goal would be to buy a piece of land we could all live on in as remote as spot as practical. I’d build a large (100′x200′) pole building type shop, insulate the hell out of it and divide the interior up into individual family living quarters.
How do the retirement acct loans work. My understanding is that they have to be repaid and in most cases they want an automatic payment taken from my pay each week to repay it. If I thought there was a greater than 70% chance my job would go away in the next few years I’d take the loan but for better or worse, my job is “looking” very secure. We have been growing and expanding ever since 2006 and now it seems to be accelerating. If that continues, I’ll end up repaying the loan. No point in doing that.
I_S
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18th March 2013 at 4:29 pm
David says:
ThePessimisticChemist
“I’m a fan of setting the dollar so that it MUST be within a certain range of the price of gold.”
This is how it was done prior to 1913 before the Fed, just like a snake in the grass, slid into the money power. You could walk into the U.S. Treasury, plop down a twenty dollar double eagle gold piece and they would hand over to you twenty dollars in green paper. Or, you could exchange your paper for a double eagle. The same can be done now on a national level if the politicians had any backbone. The thing is that gold will be settled at a much higher dollar ratio. The price of gold will be in the clouds. But that doesn’t matter. It should still be done.
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18th March 2013 at 4:39 pm
KaD says:
The way I see it you might as well tap out your 401K now while the stock market is artificially high and turn the funds into tangible assets and precious metals because in a few years the US dollar is likely to be worth less than the paper it’s printed on.
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18th March 2013 at 4:47 pm
Administrator says:
With loans from a 401k or 403b, you pay yourself back plus interest out of your paycheck. You lose out on the possibility of appreciation. If the market goes down 30%, you lose out on the losses.
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18th March 2013 at 4:51 pm
Anonymous says:
Muck,
It’s good to have company
.
Actually, hubby is pretty well informed (because I hammer away at this stuff mercilessly and won’t be quiet about it – ha!) and he’s onboard with the prepping, but I lose him when it concerns things happening “over there” and especially re: confiscation of funds. He refuses to believe it would ever be done here.
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18th March 2013 at 6:03 pm
Maddie's Mom says:
^^^That was me, Muck.
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18th March 2013 at 6:04 pm
DaveL says:
I think it would be great if everyone borrowed ALL of the money in their IRA’s/401k’s, so when the government comes to take them, all they will find IS THE SAME FUCKING IOU’S THAT ARE FOUND IN THE SOCIAL SECURITY LOCK BOX.
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18th March 2013 at 7:21 pm
Administrator says:
Maddie’s Mom
Paying .25% interest on deposits while creating 5% annual inflation is confiscation.
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18th March 2013 at 8:16 pm
GovtRunAmuck says:
I think Karl Denninger’s prediction that the Feds will initially target tax deferred accounts, rather than deposits, is probably the likely scenario. This will be easy for the government to justify since the government would simply be rescinding some of the tax deferral that it previously granted, for the good of the country, of course.
The government would promise that once an individual subsequently withdraws funds from a tax-deferred account that the individual would get credit for the tax already paid. Thus, the government would not be confiscating your money, it would only be requiring you to pay some of your future tax bill now, for the good of the country. A slippery slope, for sure, as this would probably be just the first step in a series of band-aid solutions.
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18th March 2013 at 8:49 pm
Maddie's Mom says:
Admin,
Of course it is.
Just without the gun up your nose. :-O
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18th March 2013 at 10:02 pm
Administrator says:
Commentary on The Capital Markets Posted 2013-03-19 08:41
by Karl Denninger
Stating The Obvious, Once Again
Amazing stuff, really….
Workers and employers in the U.S. are bracing for a retirement crisis, even as the stock market sits near highs and the economy shows signs of improvement.
New data show that powerful financial and demographic forces are combining to squeeze individuals and companies that are trying to save for the future and make their money last.
Fifty-seven percent of U.S. workers surveyed reported less than $25,000 in total household savings and investments excluding their homes, according to a report to be released Tuesday by the Employee Benefit Research Institute. Only 49% reported having so little money saved in 2008.
Jesus.
But while you will hear people raise the issue, they won’t talk about why this shift is happening. Never mind the really nasty figures embedded in here:
The effect of longer life spans on pension obligations has been dwarfed by the impact of declining interest rates over recent years. Because of the way pension obligations are calculated, lower interest rates means that future obligations are higher today.
But interest rates are likely to rise at some point, which will lessen pension obligations. That is less likely with longevity assumptions.
Well, yes and no.
The problem with the falure to earn the required return in a given year in an actuarial portfolio is that the impairment is permanent and worse, it compounds the longer it goes on.
Let’s assume you are $1 billion short in the earnings you’re supposed to have this year and you’re assuming 8% returns (which is ridiculously high, but common.) Next year if you don’t kick in the $1 billion shortfall from somewhere right now your plan is short $1.08 billion Manageable, right?
How much is it short in 30 years?
Over $10 billion.
Still think you can defer dealing with that $1 billion shortfall?
That’s the problem and it’s not going away. Bernanke and the “ZIRP” game being played both here and abroad are destroying the future of these plans with utterly no hope of rescue, and what’s worse is that the acts of nations such as what Cyprus just attempted add more fuel to the fire. Not only do you earn little or nothing you run the risk of outright theft!
And then these people wonder why folks just blow every penny they have right here, right now?
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18th March 2013 at 9:12 am
ThePessimisticChemist says:
Savings accounts and CDs are returning less than a single percent (.25% on the savings, and .57% on a 10yr CD at my bank).
Credit card interest = 13.54%, and if I miss a payment they will immediately jack it up to 27%.
Bonds are worth less than toilet paper right now (at least the value of TP is inflating along with everything else), so that leaves the stock market.
It pains me to say this, but damn near everyone I know in their 40s-50s has moved what little capital they had over into the stock market. These people don’t believe me when I say its going to drop like a stone and wipe out all their savings, but they don’t believe me because they can’t.
If the stock market drops again, it will wipe out what little they had left over.
Man, the list of things that could kick off this disaster are enormous. This country is like a house of cards.
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18th March 2013 at 9:26 am
Thinker says:
Denninger nails it again. Sums up the entire situation in a few paragraphs. Damn, that guy is brilliant.
It really makes you think… since there’s no way of fixing the pension obligation mess, and since private retirement savings are woefully inadequate, what exactly are we going to do in the future? We can’t kill people off. Will everyone be living in poverty? Will we institutionalize poor retirees?
All seem unlikely scenarios. Which is why I can see the government forcing the “redistribution” issue, whether it’s right or not.
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18th March 2013 at 9:52 am
AWD says:
US Bankers To US Depositors: “Don’t Panic, Nothing To See Here”
Submitted by Tyler Durden on 03/19/2013 – 09:43
While we explained exactly why there is a possibility of a Europe-style wealth tax in the US, it appears the American Banking Association has decided to put out fires early…
While the crisis in Cyprus is a real concern for depositors in Cypriot’s banks, it has no implication for depositors in U.S. institutions. Depositors in U.S. banks are insured up to $250,000 and no insured depositor has ever lost money in a bank failure…
So, it seems, the basis for not worrying about US deposits is the rule of law and the deposit insurance? Remind us again what Cypriots thought they had?
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18th March 2013 at 9:59 am
Pirate Jo says:
From Zero Hedge:
“The WSJ reports new data that shows the impact of stagnating wage growth and aging demographics is combining to squeeze individuals as a depressing 57% of Americans reported less than $25,000 in household savings and investments. On the bright side, the latest and greatest ‘Cyprus’ tax limit appears to be €20,000, or roughly the $25K threshold in the US, freeing those ‘un’-wealthy citizens to keep their hard-earned private property.”
I think I can safely conclude that this type of measure would be popular in America by a margin of 57%.
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18th March 2013 at 10:17 am
Maddie's Mom says:
lmao @AWD’s post
And most of the sheeple will believe every word from the ABA.
Propaganda at its finest.
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18th March 2013 at 10:48 am