Fidelity sees record number raid their 401(k)s

[Kanastrous]

In the wake of news about a spike in new applications for unemployment benefits comes another potentially troubling sign: A record number of workers made hardship withdrawals from their retirement accounts in the second quarter.

What's more, the number of workers borrowing from their accounts reached a 10-year high, according to a report issued Friday by Fidelity Investments.

The trends reflect the financial stress many workers find themselves in as the economy struggles to find sure footing, said Beth McHugh, Fidelity's vice president of marketing insight.

High unemployment and companies cutting back on overtime or overall hours have reduced the take-home pay of many workers.

"People tend to be taking home less," she said. "As a result the percentage of individuals initiating hardship distributions is one of the things we're concerned about."

Fidelity administers 17,000 plans, which represents 11 million participants. In the second quarter, some 62,000 workers initiated a hardship withdrawal. That's compared with 45,000 in the same period a year ago.

What's also eye-opening is that 45 percent of participants who took a hardship withdrawal a year ago, took another one this year, McHugh said.

To be eligible for a 401(k) hardship withdrawal, individuals must demonstrate an immediate and heavy financial need, according to IRS regulations. Certain medical expenses; costs relating to the purchase of a primary home; tuition and education expenses; payments to prevent eviction or foreclosure on a primary home; burial or funeral expenses; and repair of damage to a primary home meet the IRS definition and are permitted by most 401(k) plans.

A key concern is that these withdrawals are just that, they are not loans. As a result there can be a significant impact on someone's overall retirement savings. If the worker is younger than 59½, they'll pay a 10 percent penalty for early withdrawal in addition to taxes.

The average age of the workers taking hardship withdrawals is between 35 and 55, their peak earning years. It's also often a time when competing financial challenges emerge, McHugh said.

The good news in the report was that the average 401(k) account balance as of the end of the second quarter was $61,800; up 15 percent from the same time last year, but down from the end of the first quarter of 2010.

http://www.msnbc.msn.com/id/38783832/ns ... etirement/


I'm not how bad an indicator this is...but to a layman it looks pretty darned bad. And $61,8000 doesn't sound like much by way of retirement savings to begin with, but I guess the average includes people who have only just opened their accounts and wouldn't have much in 'em yet anyway.

[Stravo]

I have a friend who recently had to tap in to his 401k and it is heartbreaking to see people forced to go into their meager retirement savings now to try and survive. For most people they only have their 401k for retirement money (aside from social security) and with the one-two punch of the losses 401k's received at the start of this recession coupled with people now tapping those dwindling reserves I foresee the impact of this downturn echoing decades into the future with people not having the money they thought they would have when retirement time rolls around. If you're in your 50's and unemployed how do you intend to replentish the account after you have to tap it?

This whole mess is so fucking sad and frankly scary.

[Kanastrous]

Yeah. This sounds like something that could reverberate for a long time.

[Temujin]

It can be hard enough just to contribute to a 401K, especially when employers don't want to pay you shit. And that whole matching crap only works if your with a company for a long time, especially since it take like a year to actually become your money.

[Kanastrous]

It takes a year to vest your employer's contributions? Yeesh; I feel lucky to be on a different kind of plan.

[J]

It's been going on since shortly after the big crash in the fall of 2008 and this is actually a lot worse than it appears at first glance. Recall that Social Security is also running a deficit for the first time in decades, years ahead of the original projections. Current estimates have the funds running dry in around 20 years, I believe that's a bit optimistic but let's go with the official numbers for now.

So what happens now is that a lot of people will be hit with a series of knockout punches, their current hardships have cut their pay and forced them to drain their 401k retirement funds and their employers have in many cases cut their matching funds contributions, Social Security benefits will be questionable for them upon retirement, and those retirement savings won't be there in the future. Which means we're going to have a lot of people with little to no means of income when they retire.

Which means someone's going to have to pay to house & feed them, either the government through various programs or the families & relatives of the people themselves. Either way it drains a large amount of money out of the economy leaving those who are still working with a lot less disposable income. Given that our modern world economy is based upon consumer spending, this is a problem to say the least.

[Kanastrous]

To what degree can the social security deficit be addressed via letting the Bush tax cuts expire? I understand that the system still will have problems, but how far down the road do those problems recede if the cuts go away?

[aieeegrunt]

I've already planned on literally working till I die, even in Canada I don't expect there to be anything left after the Boomer's spend it all, given that generation's behaviour towards everything else. Fortunately the males in my family have peculiar genetics that basically stop aging around age 30 and then die suddenly in their late 60's so it kind of works out for me. I don't want that last 20 years of degenerative living anyway.

Americans drawing on their 401(k) is even worse, since there isn't even a pretense at any public option to take care of the elderly. This is an indication of desperation to be sure.

[GrandMasterTerwynn]

It takes a year to vest your employer's contributions? Yeesh; I feel lucky to be on a different kind of plan.

With some companies, you don't get 100% vested in your employer's contributions until you've been there five years.

[Stravo]

It takes a year to vest your employer's contributions? Yeesh; I feel lucky to be on a different kind of plan.

With some companies, you don't get 100% vested in your employer's contributions until you've been there five years.

I would be working for one of those companised AND the company stopped matching funds as a cost saving measure. I honestly am concerned about my social security benefits. They keep raising the retirement age and still we may not have anything left in the pot for us especially with statistics like the dwindling number of workers that are around to support the prior generation that is retiring.

People still think that the money they are currently taking out of your check is to support you when you grow old. It isn't. It's paying people like my dad. My daughters will be paying for me when I get old.

[Kanastrous]

Anybody who thinks that hasn't been paying attention for...what, about twenty years, now?

[Temujin]

It takes a year to vest your employer's contributions? Yeesh; I feel lucky to be on a different kind of plan.

With some companies, you don't get 100% vested in your employer's contributions until you've been there five years.

If I had gotten the latest job I was interviewing for, I would have gotten the matching funds in one lump sum at the end of the year and it would have been 100% mine. That was one of the good selling points about the job; unfortunately I didn't get it.

[D.Turtle]

To what degree can the social security deficit be addressed via letting the Bush tax cuts expire? I understand that the system still will have problems, but how far down the road do those problems recede if the cuts go away?

IIRC, the Bush tax cuts have nothing to do with Social Security (as Social Security is relatively independent from normal federal spending). It is financed by payroll taxes. According to the Trustee Report, if the Social Security payroll tax was increased by 2% or so, it would be indefinitely solvent. Another idea I have heard (but not seen supporting evidence for), is that if the current cap on the social security payroll tax was removed, then it would also be indefinitely solvent.

Its just another case of there being a simple solution which is almost unthinkable in the US: raise taxes a little.

Oh, also its no reason to panic that currently social security is running an unforeseen deficit. Such a thing is normal in a recession, as there are so many less people paying into the system. Once the unemployment rate is down again, the current forecasts should be pretty reliable again. It would become relevant if the unemployment rate would stay at the current levels (which is of course possible). And even then, it could be solved by simply raising taxes a little.

[Kanastrous]

Thanks, Turtle.

[Netko]

Let's put it this way; in the first and second world countries, most countries are already subsidising pensions (social security) out of general funds - the US is, in fact, in the enviable position of not having to do that. It's, in fact, in an even better position of not having to do that for the next 20 years. In an European country, there wouldn't be a social security debate at all at this point. It's only do to the US's combination of extreme legalism (OMG, SS can't draw against any other funds, so we'll let it collapse in '37, because, obviously, nobody will do nothing to prevent that even though the retired are one of the most stable and reliable voting blocks) and its "I've got mine, fuck everybody else" opposition to even any minor tax increases for the common good that there are even any reasonable grounds for worry. As Turtle noticed, minor tweaks could fix it for essentially forever without having to dip into general revenues at all.

Fuck, you've got a over 3:1 ratio of workers:retirees; we're currently meeting all pension obligations on a 1.3:1 ratio.

[JME2]

This whole mess is so fucking sad and frankly scary.

I never dreamed we'd hit this point 10 years ago. On some level, I still can't believe we've reached this stage. You're right; this is fucking insane.

[Kanastrous]

Yeah, my Mom frequently ruminates that she never expected to live through two Great Depressions...

...sure there's some exaggeration but from her perspective I understand what she means.

[JME2]

Yeah, my Mom frequently ruminates that she never expected to live through two Great Depressions...

...sure there's some exaggeration but from her perspective I understand what she means.

My grandfather shares a similiar perspective. I asked him a year ago if things were as bad as the first Depression and he said no, not yet.

Then two months ago, he brought up the subject again. This time around, he said that we were in another Depression.

This does little to instill confidence in me about any kind of recovery or life building. I fear for myself and the rest of the Millennials in the next few years.

[Broomstick]

I've been seeing various reports on this, and quite frankly I find the tone of them condescending. Then again, much of this report is coming from Fidelity, who definitely (from my experience) takes the position that the average person is too stupid to handle their own financial affairs. With people draining their accounts Fidelity will lose profits, and well, you just can't have a big financial corporation lose profits, no matter how much it might hurt the average person. And I don't think everyone in this thread is understanding of the circumstances.

The majority of these people are NOT draining their retirement fund for a lark. They're doing it so they have a place to live TODAY. So they can eat TODAY. So they can go to the doctor TODAY. You get the idea? What the fuck good does money do 30 years from now if today you're facing the prospect of being homeless?

I spent all the money I had socked away for retirement - which, to be honest, wasn't a lot - on pure survival these past three years. Then again, I have an actual pension waiting for me (assuming my former employer doesn't find a way to loot that or give the low-level retirees the shaft).

No, instead of scolding people for dipping into retirement savings we should be asking WHY so many people are doing this, and WHY are people doing this multiple years in a row. Of course, that is the elephant in the room - the dire financial straits, the lack of jobs, the lack of social safety nets - that no one in government, business, or any other sector of life wants to mention. It's back to the old memes that people are poor because they're bad/foolish, that people who are unemployed long term must somehow be defective, and people dipping into savings to pay for today are foolish rather than desperate - and if they are desperate, well, they must have done something wrong and deserve their fate.

And you can add my dad to the chorus of Great Depression survivors who say we're back there again.

I'm doing the best I can with what I have, but I confess to some sleepless nights about the whole mess. The world really is getting worse. I was lucky enough to have about 15 really good years where I wasn't desperate and struggling. Boy, I sure miss that!

[Kanastrous]

If my revenues were dependent upon people being too stupid to handle their own financial affairs, I expect that would be my position too.

I don't know, Broomstick, I don't see where anyone in the thread suggested that this looks like anything but Real Bad News and an indicator of desperation, certainly not people enjoying a lark.

[Broomstick]

First sentence of my post - I was referring not just to the OP but other reports as well, on the news an in print. Last night one the TV stations was really harping on how foolish these people are and how you should sell your home before you even consider touching your retirement - never mind that 3 of the 4 people they interviewed had already lost their homes and had no other sources of income. Really, it made them look bad. I'm still a little pissed off about it. Maybe pissed off enough that I wasn't entirely clear where I was coming from.

[Kodiak]

When I lost my job and was still appealing unemployment benefits our 401K was the first to go. We deferred the tax-hit to next year, but it'll catch up to us eventually.

[JME2]

I'm doing the best I can with what I have, but I confess to some sleepless nights about the whole mess. The world really is getting worse. I was lucky enough to have about 15 really good years where I wasn't desperate and struggling. Boy, I sure miss that!

Join the club. I haven't had a truly good night's sleep in a while.

[Knife]

Indeed, it is the elephant in the room. Who gives a shit about retirement if you have nothing left after 2-3 years of the hurt locker, and I don't care about Fidelity money managers when I have to choose between current debt and issues versus their job and my supposed retirement in 20-30 years. Most people in my generation already know SS isn't going to be waiting for us, that we probably aren't going to retire at 65 and drive an RV around for 20 years more.

[Broomstick]

I'm doing the best I can with what I have, but I confess to some sleepless nights about the whole mess. The world really is getting worse. I was lucky enough to have about 15 really good years where I wasn't desperate and struggling. Boy, I sure miss that!

Join the club. I haven't had a truly good night's sleep in a while.

I feel for you, I truly do. I left college during a recession (though nowhere near as bad as this one) and had a degree in the arts... it was not a good time in my life.

Now - it's 25 years later and not only do I have to support myself, I have a disabled spouse as well. It's neither bad nor worse, just different. I have some resources now I didn't back then, and some new liabilities as well.