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People are cashing out their retirement accounts to pay for "emergencies"
Old 07-20-2008, 12:02 PM   #1
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People are cashing out their retirement accounts to pay for "emergencies"

Cashing Out - WSJ.com

Americans were unprepared for retirement before this economic slowdown, and now it is getting worse.
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Old 07-20-2008, 12:08 PM   #2
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The 'stupid tax' sure is increasing rapidly.
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Old 07-20-2008, 12:34 PM   #3
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At least they will have to work longer to support the social programs
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Old 07-20-2008, 12:53 PM   #4
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This just supports my hunch that 401k's are a disaster waiting to happen. Most people don't have the financial knowledge (nor the inclination) to understand even the basics of saving for retirement; let alone be able to leave their savings alone in times of crisis. It's going to be interesting to see what happens in 15 to 20 years when those who started with 401ks reach retirement age.

Corporations got a pretty sweet deal when these were invented, allowing them to shift all of the retirement burden onto the employee. I realize some people (like myself) prefer it that way, but for other people, it's an enormous mistake.
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Old 07-20-2008, 01:48 PM   #5
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Corporations got a pretty sweet deal when these were invented, allowing them to shift all of the retirement burden onto the employee.
The deal was between the employer and the employee, right? I mean, government doesn't require employers to provide a retirement plan, so 401Ks and other defined contribution plans just provided another tax-advantaged way for employers to compensate employees.

I agree that things will likely not end well for many. If the nation has the guts to see it through without instituting huge new social programs to shift wealth to these people, then there may be a silver lining. Just as a generation of people learned thrift from living as children during the great depression, perhaps the next generation will see mom and dad scraping by and decide that their future is in theor own hands and start thinking ahead. But, doubt it.
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Old 07-20-2008, 02:28 PM   #6
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At least they will have to work longer to support the social programs

Good point, may be the upcoming doom and gloom over the Boomer generation leaving the work force and being supported by fewer and fewer workers will be mitigated somewhat by many boomers having to work much longer than anticipated.

I do believe that the average Joe (and Joesephine) can't manage anything as "complex" as a 401(k)
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Old 07-20-2008, 02:47 PM   #7
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The 'stupid tax' sure is increasing rapidly.
ditto
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Old 07-20-2008, 04:14 PM   #8
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We know someone who has done this. Stupid fool is doing so because he refuses to face up to his responsbilities. Is in his mid 50s, wants to retire but has no money because has never learnt to live within his means. However, like the petulant brat he is, he recently quit his job which provided a healthy income, so he could take time off. Only problem is despite his age he never bothered to save anything so only had enough money to survive for 2 months, hence the raiding of his 401k. I dread to think what his retirement will be like.
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Old 07-20-2008, 04:44 PM   #9
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We know someone who has done this. Stupid fool is doing so because he refuses to face up to his responsbilities. Is in his mid 50s, wants to retire but has no money because has never learnt to live within his means. However, like the petulant brat he is, he recently quit his job which provided a healthy income, so he could take time off. Only problem is despite his age he never bothered to save anything so only had enough money to survive for 2 months, hence the raiding of his 401k. I dread to think what his retirement will be like.
So you know my FIL?
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Old 07-20-2008, 05:05 PM   #10
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This just supports my hunch that 401k's are a disaster waiting to happen. Most people don't have the financial knowledge (nor the inclination) to understand even the basics of saving for retirement; let alone be able to leave their savings alone in times of crisis. It's going to be interesting to see what happens in 15 to 20 years when those who started with 401ks reach retirement age.
I retired a bit over a year ago, from a company that I was with for almost 30 years. Starting out with a "promise of a pension" when I started there, it "evolved" into the 401k and cash balance pension plan that I had when I left. As you say, mananagement of these funds was "mine" when I retired.

Over the last year, ten people have retired from our department (company has 80k employees world wide, so that's not many). As many folk do, we discussed what we should do with our $$$ as retirement approached. Of the ten, eight gave the "management" of their retirement resources to a "professional financial guy" that one of the group knew. Can't say if that was a good/bad thing, since I don't keep in contact with any of them.

Only one other (and myself) took the time to "learn" about mananging our own retirement financial resources.

What this tells me that in the future, a lot of folks will take the route of giving managment of their retirement portfolio to a "professional" indivudial/organization (next investment opportunity ?)

At least those 8 can blame someone else for and downturn in their retirement finances (of course, they are paying for that opportunity).

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Old 07-20-2008, 05:07 PM   #11
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The deal was between the employer and the employee, right? I mean, government doesn't require employers to provide a retirement plan, so 401Ks and other defined contribution plans just provided another tax-advantaged way for employers to compensate employees.
I saw it more as a way for employers to get out of the pension business. 401Ks relieve the employers of a lot of responsibilities. For many, the employees (who don't know how to properly "manage" their 401Ks) are the losers.
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Old 07-20-2008, 05:21 PM   #12
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I've decided this is a good thing to do. These people will have to work forever, pay income taxes and pay into SS while they're doing it. Hopefully, they will also all buy variable and SPIA annuities since financials are a big part of my index funds. I'll get the perfect tax support of my medicaire and SS with more profitable companies in my funds.

I think we should dedicate this forum to encouraging others to work forever and buy annuities!
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Old 07-20-2008, 05:25 PM   #13
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We know someone who has done this. Stupid fool is doing so because he refuses to face up to his responsbilities. Is in his mid 50s, wants to retire but has no money because has never learnt to live within his means. However, like the petulant brat he is, he recently quit his job which provided a healthy income, so he could take time off. Only problem is despite his age he never bothered to save anything so only had enough money to survive for 2 months, hence the raiding of his 401k. I dread to think what his retirement will be like.
A friend of mine is like that only worse. Mid 50s, always had the best toys, $5000 hunting trips to Alaska, whenever he had any extra money he would find something to buy. Now his peers are starting to retire and he has nothing saved. Being self employed he has no 401K, no pension, his construction business is worth nothing, he does have a little equity in his home and he is really getting worried about never being able to retire. He always gave me a hard time about being a little tight with my money. I feel sorry for him now or I would tell him I told you so.
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Old 07-20-2008, 05:30 PM   #14
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This just supports my hunch that 401k's are a disaster waiting to happen. Most people don't have the financial knowledge (nor the inclination) to understand even the basics of saving for retirement; let alone be able to leave their savings alone in times of crisis...
...or even in other times. I've done taxes at H&R Block for the past seven years--I often have young and middle-aged clients come in with a 1099-R showing money distributed to them from a retirement plan. When questioned about it, it usually reflects a check they received when they left a job. Of the dozens of clients in this situation, exactly ONE answered positively when I asked if they rolled the money over to an IRA.

They answer instead
- "No, I bought a car"
- "No, I spent it"
- "No, I needed it to live on"

They just have no idea how hard it's going to be to replace that retirement kitty, if indeed it ever gets replaced.
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Old 07-20-2008, 05:41 PM   #15
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I think we should dedicate this forum to encouraging others to work forever and buy annuities!
Since I'm retired (and I don't believe U R), I fully agree and support your statement ...

- Ron
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Old 07-20-2008, 07:11 PM   #16
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The downside is that they could significantly reduce borrowers' savings at retirement and create an expensive tax bill if they aren't repaid on time. Those who fail to pay back the loan and are younger than 59 are subject to regular income tax and an Internal Revenue Service penalty tax of 10% on early withdrawal. Even if the loan is repaid on time, the borrower is repaying the loan with after-tax dollars and will have to pay taxes a second time when the money is withdrawn at retirement, advisers say.

These articles always bug me with their implication that you get double taxed when you take and repay a loan from a 401K.

If you are younger than 59 1/2 and don't repay the loan you get hit with taxes and penalty. If you repay the loan you do so with after tax money, that takes care of the loan money you owe taxes on. When you cash out your 401k later in life you pay taxes on everything that comes out. There is no double taxation as implied.

If you have $100K in the 401K and borrow $50K and pay it back, that is a total of $150K that will get taxed. $50K gets taxed when when you repay the loan and the other $100K gets taxed when you withdraw it.

No double taxation and no free lunch.
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Old 07-20-2008, 07:29 PM   #17
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...or even in other times. I've done taxes at H&R Block for the past seven years--I often have young and middle-aged clients come in with a 1099-R showing money distributed to them from a retirement plan. When questioned about it, it usually reflects a check they received when they left a job. Of the dozens of clients in this situation, exactly ONE answered positively when I asked if they rolled the money over to an IRA.

They answer instead
- "No, I bought a car"
- "No, I spent it"
- "No, I needed it to live on"

That's why I could not to do taxes because I'd have the constant urge to yell "Are you stupid " !
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Old 07-20-2008, 07:43 PM   #18
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At least they will have to work longer to support the social programs
Don't count on it. My dad and my aunt fall ino that group and they both say they'll retire at 62 no matter what. Neither of them are anywhere near being able to retire at 62 unless they're dead before 70. Looks like i'll be supporting my parents and maybe my aunt.
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Old 07-20-2008, 07:48 PM   #19
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Don't count on it. My dad and my aunt fall ino that group and they both say they'll retire at 62 no matter what. Neither of them are anywhere near being able to retire at 62 unless they're dead before 70. Looks like i'll be supporting my parents and maybe my aunt.
On a related note, what happens if my parents die and they have a negative net worth? Do I get stuck with the bill. What about my aunt? My brother and I are the sole heirs.
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Old 07-20-2008, 07:50 PM   #20
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On a related note, what happens if my parents die and they have a negative net worth? Do I get stuck with the bill. What about my aunt? My brother and I are the sole heirs.
IANAL, but I think debts aren't inherited (unless you co-signed).
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