Americans Raiding Retirement Funds
Americans are borrowing against their 401(k) to pay for non-retirement needs such as mortgages, credit card debt or college tuition, according to a new study from financial advisory firm HelloWallet. That amounts for more than $70 billion in annual withdrawals.
The retirement crisis is coming. Most retired currently are products of the “defined benefit” generation of workers where they are guaranteed a certain payout for life in retirement.
The baby boomers all got funneled into or bought into the “401(K)” dream where they could retire rich and have the assets leftover to pass on to their children in their estate. But the market returns the past 13-years have been meager and a poor economy has resulted in some tapping the money earlier for living expenses as the story notes.
The real crisis comes as the current “divorce/singlehood” generation starts to enter their retirement years. For the eons, one major benefit of a marriage was the fact that many times you had a healthy spouse around to care for a spouse that had health problems as they aged.
All those WWII couples who stayed married 40, 50, 60, 70 years had each other for economic and care purposes. It was a great “system” that worked very well. But thanks to the divorce culture of the 1970’s and the now amped up version of it courtesy of the Lena Dunham generation, we are going to see a lot more elderly single people needing care.
So the Obama generation either pays for more government care or turns loose the death panels.
It’s coming.
Posted by .(JavaScript must be enabled to view this email address) on January 16, 2013 at 0740 hrs
A spouse to care for you in old age tends to work a whole lot better for men than for women (because women live longer and have tended to marry older men). The traditional support sysem for old age is one’s children.
Then again, more than a few parents are still supporting/subsidizing children (and sometimes their children’s children) who are well into middle age. When they need to lean on these children in old age many may find that these children have neither the means nor the inclination to be there for them.
And so, the end of most private-sector defined-benefit plans, along with what might be called a decline in social capital, is indeed going to leave many old people dependent on government.
Unfortunately demographics (less young people to support the old due to declines in birth rates) will make it increasingly difficult for government to do so.
Posted by .(JavaScript must be enabled to view this email address) on January 16, 2013 at 0854 hrs
But taxpayers can probably still afford to support teachers who can’t teach because they are afraid of children:
http://www.cbsnews.com/8301-201_162-57564082/teacher-afraid-of-kids-sues-over-middle-school-job/
Posted by .(JavaScript must be enabled to view this email address) on January 16, 2013 at 0858 hrs
My fear is that if you are frugal and made sacrifices to save for retirment you will be deemed “fortunate” by the goverment and then denied the social security money that you have paid in so it can be givin to the less fortunate who spent all their money as fast as they got it and were not “able” to save for retirement.
Posted by .(JavaScript must be enabled to view this email address) on January 16, 2013 at 0917 hrs
reaper,
We have that system now for college tuition and expenses.
Irresponsible get all the goodies and handouts. Savers and College IRA investors are punished.
Posted by .(JavaScript must be enabled to view this email address) on January 16, 2013 at 0928 hrs
My fear is that if you are frugal and made sacrifices to save for retirment you will be deemed “fortunate” by the goverment and then denied the social security money that you have paid in so it can be givin to the less fortunate who spent all their money as fast as they got it and were not “able” to save for retirement.
Yeah, I agree. I’m more than a little concerned about this, assuming I’ll ever be able to afford to retire.
Irresponsible get all the goodies and handouts. Savers and College IRA investors are punished.
Couldn’t disagree more with you, Kevin.
I have 3 college-age kids (one graduated and the other two in school). There’s no way in hell I could have saved enough for them all to get through school - we’re talking something like $240,000 for a basic state school. I did the best I could and we borrowed the rest.
When I was in school, it was possible to work and save enough for everything, and that’s what I did. Today, with 30+ years of tuition increases that far exceed the inflation rate, that’s just not possible.
Posted by .(JavaScript must be enabled to view this email address) on January 16, 2013 at 1300 hrs
I agree with you, Cynical. And borrowing for college makes total sense. The financial benefit is accrued forward, so it’s logical to project the cost forward as well. It’s the same reason people borrow for homes, and governments borrow for major, long-term capital projects.
If we told people they couldn’t buy a home or an education unless they paid cash, we’d have a whole lot of uneducated renters out there.
Posted by Recess Supervisor on January 16, 2013 at 1323 hrs
cynical,
Very few can save that kind of cash.
BUT my point was: those of us that DO save for our kids are punished in the government goodie handout calculation!
If e save $25,000 or $50,000 for our kids we will get less in financial government goodies than if we just blew the money on some nice vacations and decided not to save.
That is the problem.
Posted by .(JavaScript must be enabled to view this email address) on January 16, 2013 at 1347 hrs
And borrowing for college makes total sense. The financial benefit is accrued forward, so it’s logical to project the cost forward as well.
Yes, I mostly agree with this. My only concern is the cost is going up significantly faster than inflation and wages.
If e save $25,000 or $50,000 for our kids we will get less in financial government goodies than if we just blew the money on some nice vacations and decided not to save.
I don’t disagree, but I believe the problem to be primarily one of escalating cost at the moment.
Posted by .(JavaScript must be enabled to view this email address) on January 16, 2013 at 1409 hrs
I don’t disagree, but I believe the problem to be primarily one of escalating cost at the moment.
Why is cost escalating?
Maybe, perhaps, we send too many kids to college who should not be going?
If one checks out any UW campus, 75% of the kids are NOT serious about their education. This partially explains the 20-25% graduation rate.
We need to, as a society, stop sending slackers and partiers, not serious about learning, to college by stopping the government subsidy to those kids.
OR
We could inflict government cost controls on colleges, especially left wing tenured professors! Obama should do an executive order!
Posted by .(JavaScript must be enabled to view this email address) on January 16, 2013 at 1419 hrs
This is why I don’t start a education fund for my grand children. If I put money away for their school then that will be held against them if they try to get loans.
The goverment is making it pay to be irresponsible.
Why would you work and save to go to college when you can just take out loans and then get them forgiven ?
You have to work with what they give you.Posted by .(JavaScript must be enabled to view this email address) on January 16, 2013 at 1423 hrs
reaper,
You are right. That is the same EXACT problem in saving for retirement.
Covetous liberals will say the savers have more and push for the “fortunate” to be denied Social Security. Penalizing the responsible again.
Literally, its stupid to save for anything in this society. It’s more “responsible” to spend you money on pot, alcohol, and instant gratification living… that is what government rewards generously these days.
Posted by .(JavaScript must be enabled to view this email address) on January 16, 2013 at 1435 hrs
I know facts aren’t any fun, Reaper, but college loans - whether public or private - are nearly impossible to get discharged in a bankruptcy proceeding subsequent to the 2005 changes to bankruptcy law. For you to suggest (or believe) otherwise is inaccurate.
Posted by Recess Supervisor on January 16, 2013 at 1448 hrs
Government forgives student loans all the time ... for public service.
Student loan forgiveness for dummies… Tinyurl.com/idiotrecess
Posted by .(JavaScript must be enabled to view this email address) on January 16, 2013 at 1539 hrs
There is some misleading information in the article and two different options are being conveyed as the same thing:
1. A distribution of the 401(k) funds to meet expenses—this can be done as a ‘hardship’ withdrawal and is subject to taxes and a early withdrawal penalty. There is usually a waiting period as well before the participant can start participating in a 401(k) plan again.
2. A loan against the 401(k) account—per IRS rules, if the loan is either for the purchase of a main residence OR will be paid in equal payments over five years, it is not treated as a distribution. If the loan does not meet these criteria, then it is treated as a distribution.
With that said, it is sad that people are having to turn to their retirement savings in order to get by, and worse if they have had to incur some big expenses (like the medical bills mentioned in the story).
Here is more information on 401(k) plans:
Publication 575—Pension and Annuity Income
Posted by hsgbdmama on January 16, 2013 at 1554 hrs
There is some misleading information in the article and two different options are being conveyed as the same thing:
1. A distribution of the 401(k) funds to meet expenses—this can be done as a ‘hardship’ withdrawal and is subject to taxes and a early withdrawal penalty. There is usually a waiting period as well before the participant can start participating in a 401(k) plan again.
2. A loan against the 401(k) account—per IRS rules, if the loan is either for the purchase of a main residence OR will be paid in equal payments over five years, it is not treated as a distribution. If the loan does not meet these criteria, then it is treated as a distribution.
With that said, it is sad that people are having to turn to their retirement savings in order to get by, and worse if they have had to incur some big expenses (like the medical bills mentioned in the story).
http://www.irs.gov/Retirement-Plans/Plan-Sponsor/401(k)-Resource-Guide—-Plan-Sponsors—-General-Distribution-Rules
http://www.irs.gov/pub/irs-pdf/p575.pdf
Posted by hsgbdmama on January 16, 2013 at 1556 hrs
I have 3 college-age kids (one graduated and the other two in school). There’s no way in hell I could have saved enough for them all to get through school - we’re talking something like $240,000 for a basic state school.
So none of your kids have a job to help pay?
Posted by .(JavaScript must be enabled to view this email address) on January 16, 2013 at 1653 hrs
Yeah Smeety, I’m aware. Nice attempt to cover for a ridiculously broad generality that wasn’t at all what the original commenter said.
Plus, the requirements for that are quite specific, and that’s not really forgiveness so much a form of deferred compensation.
The original implication is that people can rack up student loan debt and then blow it off in Chapter 7. That’s nearly impossible unless you’re disabled.
Posted by Recess Supervisor on January 16, 2013 at 1749 hrs
You are aware. That’s awesome. Are you also aware that just a few short months ago our government acted (again) to keep student loan rates below the agreed upon rate, costing the taxpayers billion$?
Deferred compensation? Wow…. love the craziness.
And, for the record, I did not get from the statement anything about bankruptcy, implied or otherwise. I happen to remember King Barry’s trial balloon in August over student loan forgiveness….
Posted by .(JavaScript must be enabled to view this email address) on January 16, 2013 at 1850 hrs
Uhh…you guys need to see what Obama’s done with student loans. First he had the government take over all student loan lending as a sidecar to the ObamaCare bill. Then late last year he implemented some new executive orders on the repayment process.
You can google this stuff under “obama” and “ibr”
Basically there are no more underwriting standards for student loans. No credit underwriting as to repayment ability nor grade or progress requirements.
And while the debt can’t be discharged in BR, any unpaid debt is now completely forgiven after 20-years. During those first 20-years, the payments are capped at no more than 10% of your income above the poverty level of $17,000.
Let’s say I am a professional student who decides I need a Law degree because I can’t get a job out of college. I can borrow up to $140,000 against this program to go to Law school with no underwriting standards. Then I graduate and take a job that pays me $40,000 a year as a court clerk somewhere. My repayment requirement is only 10% of the $23,000 I make above poverty or $2,300 a year. And I only have to pay it for 20-years. Then the remaining balance, which in the scenario I outlined would be hundreds of thousands of dollars, is completely forgiven and I dont’ have to file for bankruptcy.
Under Obama, total student debt has risen from approximately $600 billion in 2008 to almost $1 trillion last month. He’s pouring tons of money into the system with no accountability and minimal expectation of it being paid back.
This will further drive up tuition costs for everyone, continuing the cycle of the higher education ponzi bubble.
No one is covering this story.
Posted by .(JavaScript must be enabled to view this email address) on January 16, 2013 at 2151 hrs
Oh, Kevin. Your rants about covetousness and fiscal responsibility…one need only do a quick ccap search to see how ridiculously full of it you are.
Posted by .(JavaScript must be enabled to view this email address) on January 16, 2013 at 2242 hrs
Steve, I’ll gladly agree with you that income-based repayment is a government-funded Band-Aid for the much bigger problem that I believe you’ve often addressed; namely, the ridiculously inflationary nature of higher education. I think we see similar trends between higher ed and health care - lots of ridiculously fancy buildings and duplication of really expensive services. I, for instance, live in a metro area of 250k that now has two heart specialty hospitals. Why? Not because of demand - they’re usually nowhere close to full. But they provide a nice stream of customers that need high-cost care, and Hospital A sure wasn’t going to let Hospital B take all those patients.
I think the federal government cutting checks to colleges (be it grants or loans) without demanding some kind of greater accountability across the system is foolish.
But setting aside IBR, I have no problem with the federal government no longer serving as a backstop for easy money in the banking sector. There’s no reason the federal government should have been insuring loans issued by private sector banks all those years - private banks get all the profit and taxpayers get all the risk. On the whole, college students haven’t been an historically risky proposition (I’m not counting students at for-profit schools in there, since their schools aren’t real and their default rates are unsurprisingly a lot higher). Most 18-year-old kids aren’t going to be creditworthy, and many of those who need the money the most also come from family backgrounds where a financially credible co-signer isn’t available. Then what?
Posted by Recess Supervisor on January 16, 2013 at 2255 hrs
I know facts aren’t any fun, Reaper, but college loans - whether public or private - are nearly impossible to get discharged in a bankruptcy proceeding subsequent to the 2005 changes to bankruptcy law. For you to suggest (or believe) otherwise is inaccurate.
So RS, was this as colossally wrong as it sounded? Reaper used the term forgiven, he did not use the term bankruptcy. Is this one of those times that you brought up earlier when someone who only thinks he knows stuff is entertaining to others, or do you have an alternate explanation?
Posted by .(JavaScript must be enabled to view this email address) on January 17, 2013 at 0902 hrs
So none of your kids have a job to help pay?
Of course they do, but student (i.e. entry level) jobs are hard to come by because of the crappy economy combined with unnecessary government regulation regarding pay rates.
But even if they worked full-time the whole year that wouldn’t cover cost. As I mentioned, higher education costs have far outpaced the typical person’s ability to pay as they go.
I think we’re currently in an education bubble not all that different from the recent housing one. Sooner or later, something will have to change.
Posted by .(JavaScript must be enabled to view this email address) on January 17, 2013 at 1211 hrs
Total Entries: 21059
Total Comments: 146944
Most Recent Entry: 05/17/2013 05:57 am
Most Recent Comment on: 05/18/2013 05:31 am
Total Members: 9751
Total Logged in members: 0
Total guests: 50
Total anonymous users: 0
Most Recent Visitor on: 05/23/2013 01:18 pm
The most visitors ever was 663 on 09/02/2012 05:13 pm
Protected and licensed under a Creative Commons License (some rights reserved).