BIDENOMICS: More and More Americans Are Taking Money Out of Their 401ks to Get By | Joe Hoft

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BIDENOMICS: More and More Americans Are Taking Money Out of Their 401ks to Get By

More and more Americans are taking money out of their 401ks to make it in the Biden economy. 

Yahoo reports:

Short-sighted or short salvation? More and more Americans are reaching into retirement savings for funds to cover their bills pronto — all while their 401(k) balances are down.

That’s according to Fidelity Investments’ third quarter analysis of savings account balances for more than 45 million IRA, 401(k), and 403(b) retirement accounts.

It also underscores how many people’s retirement accounts have also become their emergency savings fund when unexpected costs arise.

“Juggling short-term expenses is a major challenge for many individuals,” Michael Shamrell, vice president of thought leadership for Fidelity Workplace Investing, told Yahoo Finance.

From July through September, 2.3% of workers withdrew funds from their accounts for hardship, up from 1.8% during the same time last year. An additional 3.2% of participants took an in-service withdrawal — if their plan permitted it — up from 2.7% from a year ago. For in-service raids, no hardship was required as a motive.

At the same time, 2.8% of participants took out a loan from their 401(k), which is on par from the previous quarter but up from 2.4% in the third quarter of last year. The percentage of workers with an outstanding loan has increased slightly to 17.6%, up from 17.2% last quarter and 16.8% a year ago.

The top reasons behind this uptick were avoiding foreclosure or an eviction and medical expenses, according to the report.

Here are some thoughts from a reader on what this all means:

  • 5% of 401K accounts are being withdrawn partially or in total, annually, ahead of retirement (some are hardship/by-rule emergencies, others are because the plan allows special exceptions). Regardless the “why” this is an alarming rate of 5% of pre-retirement age individuals who “cash out” and then do not have a retirement account to sustain them. So guess what? Now Social Security is their only Plan B on average.
  • Loans against 401K plans are rising, over 17.6% now and will trend toward 20% or more by next year, and grow at an alarming 3-4% annual rate. While this may only be 60-70% of the total 401K account value, it’s still a significant risk and chunk of retirement all the same, to be floated outside the retirement system and played with – gambling, spending, paying bills, playing the stock market, or whatever.  And again, we have to see this for what it is – a potential “loss” of that person’s entire Retirement Plan, yet again leading to Plan B, try and lean on Social Security to pay for their bills going into Retirement age, and yet another bailout on taxpayers.

So if 5% annually are bailing prematurely on 401K savings before retirement age, and 20% and growing have most of their retirement cashed out for a loan against the 401K account, what does this say about the health of the US Economy at this time?

  • It’s not about the “why” – it’s about the state of the Economy. If our Economy was robust, the salary/earnings/wages would be enough to satisfy costs of living. Instead, inflation and interest rates are eating into savings and retirement plans, along with sky-high medical and dental costs.

 

 

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