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-   -   Depleting 401K (http://www.early-retirement.org/forums/f28/depleting-401k-38679.html)

ferco 09-13-2008 04:15 AM

Depleting 401K
 
Read a recent article about an increasing number of Americans depleting their 401k's just to pay bills due to layoffs and housing crisis. How many of you know of such instances? Is this common in your area? What will be the ultimate impact on the boomers who get to age 65 +?

W2R 09-13-2008 05:30 AM

I knew some people who took out loans on their TSPs right after Katrina, but have since paid them back. I haven't seen anyone depleting a 401K, but there are plenty who are not contributing very much to it.

rs0460a 09-13-2008 07:38 AM

My answer....
 
It might just be a "generational thing". A few examples:

- Yes, I cashed in my 401k last year. Of course, it's because I retired and moved it to a rollover IRA :coolsmiley: ...

Seriously though, I've seen instances of "younger folk" treat 401k accounts more as savings accounts rather than retirement (e.g. long term) vehicles.

When my DW/me built our current home (way back in '94) I went to our local S&L for a note/mortgage. Upon seeing our current financial statement, the "loan officer" (being a generation+ younger than me) suggested that maybe I would just want to "pay cash" from our IRA/401k's rather than take out a loan. No thanks, I responded. Those vehicles were for another "destination" (BTW, with 50% down, this being our 4th home since we were married, we paid off the note in 5.5 years).

My wife (who still wo*ks due to not being "emotionally ready" for retirement) speaks of the folks that she works with. Most are at least a generation (or earlier) in age than her, and use their 401k's as "savings accounts" to be used whenever they want (or need) their latest. Might be a car, a child's current college tuition, or any other "immediate need". Understandably, they realize that it is a vehicle for retirement, but they have yet to separate current spending vs. something that they will need money for many years in the future.

I say it's a generational thing since when I started work, there were no things such as IRA's or 401k's. If you worked for a "decent" company, you had a retirement (e.g. defined benefit) plan, and after 30-40 years of work, you had a retirement income (in addition to SS and your own savings - not tax deferred). I do understand that today (especially in the global marketplace) folks don't stay at their current company for more than a few years. Due to that situation, 401k's certainly "fit the need" in today's employment "environment".

Today, with the elimination of pension plans, most folks starting out know that they need to "save" on their own (via 401k's & IRA's) but I don't think they see these vehicles as replacements for pensions (since they never had them).

As for my DW/me, starting our own "retirement program" via our first IRA's (in '82) and later 401k's, when offered by our respective employers, we were "motivated" by the knowledge that our respective pension plans were eliminated and basically were told that we were "on our own".

I don't think (IMHO) that today's "young folk" understand the long term result of their short term actions.

BTW (based upon the OP's comment), my DW/me are "boomers" and are well prepared for retirement. Oh yes, I retired last year (age 59) and don't plan on taking SS till age 70 (to reduce my RMD's and to provide my DW with a much larger SS benefit, assuming I pass first).

Anyway, that's my take on the subject.

- Ron

Achiever51 09-13-2008 08:46 PM

Before I retired, I ran an organization with about 30 employees, most of whom were younger than I. I was amazed at how little these folks were putting away for retirement -- most didn't participate in the 401(k) plan offered to them -- and for those that did participate, several treated it like their personal Christmas club accounts, borrowing as much as possible as often as they could!

When asked about it, most of them would reply that they "weren't worried about retirement; it was too far in the future to care about" or made comments like "I probably won't live to see retirement." This was very disturbing to me...and when I announced that I was retiring early, most assumed that I won the lottery or inherited some huge sum of money. Sigh.

Gardnr 09-13-2008 10:20 PM

Just one anecdote that I know of. My SIL is about 52 yrs old and recently lost her mid level management job at a bank. Apparently she has started to draw on her 401K for living expenses.

I have no idea how much she has saved but I do know that they've lived above their means all their life and are probably up to their eyeballs in debt. If she doesn't find a job soon she's likely to wind up in bankruptcy court. She's not likely to find the Dave Ramsey religion either. :(

She's been the typical American, juggling debt to buy toys, living in denial about the future. She's destined to work into her '70s. Her DH has been disabled for quite some time with back problems (several surgeries) and draws SSDI.

I think it's going to be interesting (in a watching-a-train-wreck kind of way) to see what happens over the next couple of decades as many more people hit retirement with little more than SS to live on.

I'm hopeful that the younger generations will see this happen and kick it into gear before it's too late.

armor99 09-14-2008 06:12 AM

The thing that frightens me the most about this is that as a voting block, these folks are huge. I fear that as all of these folks realize they are "not going to make it", they will start trying to pass laws to take money out of my 401K or SS benefits.

flatrock 09-14-2008 07:11 AM

401K
 
I borrowed 10K from my 401k to buy my wife a commuter car. I had intended to borrow from a bank but the rate from my plan beat the bank's interest rate by a significant margin. I paid myself back early with interest. I dont think I lost enough in stock appreciation to offset the interest I paid back. I have not been impressed with my plan's offerings or their performance. This is the only time I have borrowed. I have a 6 figure balance and I would probably do it again under similar circumstances . I contribute the full 15%.

novaman 09-14-2008 07:45 AM

I know a guy who is twice divorced and has had to raid his 401k to keep going. He's going to have to keep working for a very very long time.

FIREd 09-14-2008 10:28 AM

FIL, in his 60s, raided his meager 401K after losing his job. Before that, he had to borrow from his 401K to repay some debt. It's almost all gone now. No other retirement savings. No equity in his home and still 29 years left on his mortgage. :(

W2R 09-14-2008 10:46 AM

Quote:

Originally Posted by FIREdreamer (Post 713950)
FIL, in his 60s, raided his meager 401K after losing his job. Before that, he had to borrow from his 401K to repay some debt. It's almost all gone now. No other retirement savings. No equity in his home and still 29 years left on his mortgage. :(

Hope he's got a dream of a pension! That's an awful situation.

Walt34 09-14-2008 10:47 AM

Quote:

Originally Posted by Gardnr (Post 713834)
She's been the typical American, juggling debt to buy toys, living in denial about the future. She's destined to work into her '70s. Her DH has been disabled for quite some time with back problems (several surgeries) and draws SSDI.

I think it's going to be interesting (in a watching-a-train-wreck kind of way) to see what happens over the next couple of decades as many more people hit retirement with little more than SS to live on.

We also know several people who are going to be living in single-wides, if they can afford that. One couple in their late fifties is almost certainly headed for bankruptcy, and other than his home, a BIL has almost zero assets and lots of debt.

Lots of train wrecks coming.

haha 09-14-2008 11:34 AM

Quote:

Originally Posted by Walt34 (Post 713956)
Lots of train wrecks coming.

One hears this, but I have not yet seen anyone take a step down. I do know people about my age who are still working, but they seem to like to.

Also, in many areas of the country a well earning couple who both take SS at FRA can have a pretty nice budget.

I guess we will see in the next 25 years, but so far at least I don't see it. And many of my old friends have come into good inheritances, have good investments, and are very well fixed. There are a lot of succesful people around.

Ha

simple girl 09-14-2008 11:36 AM

I keep reminding my brother not to touch his 401K. His wife lost her job (laid off), and unemployment replaces I think about 60% of her income. Fortunately, he has listened to my advice so far, but I'm worried as time goes on that he may break down and get into the account.

He now agrees about the importance of having an emergency savings. He's also getting a tough, quick lesson on LBYM. He's a good guy, just likes to have fun. ^-^

Gardnr 09-14-2008 11:44 AM

Quote:

Originally Posted by armor99 (Post 713874)
The thing that frightens me the most about this is that as a voting block, these folks are huge. I fear that as all of these folks realize they are "not going to make it", they will start trying to pass laws to take money out of my 401K or SS benefits.

Yeah, I know what you mean. I've had that nagging fear too. You can see them salivating over the assets of those who saved, invested and took care of themselves. We're going to have to be very vocal when that time comes and represent ourselves with the righteous arguments that should win out.

Gardnr 09-14-2008 11:49 AM

Quote:

Originally Posted by haha (Post 713969)
One hears this, but I have not yet seen anyone take a step down. I do know people about my age who are still working, but they seem to like to.

Also, in many areas of the country a well earning couple who both take SS at FRA can have a pretty nice budget.

I guess we will see in the next 25 years, but so far at least I don't see it. And many of my old friends have come into good inheritances, have good investments, and are very well fixed. There are a lot of succesful people around.

Ha

Yes, certainly time will tell. I think that easy access to very large debt balances has allowed many to keep ahead of the wave and service the debt.

I hope I'm wrong as this scenario will touch us all in some way.

FIREd 09-14-2008 11:56 AM

Quote:

Originally Posted by Want2retire (Post 713955)
Hope he's got a dream of a pension! That's an awful situation.

No pension, just social security. But at least he is lucid about it all. He knows he'll have to work t'il the end...

Martha 09-14-2008 12:00 PM

When I was pres of our firm, I made it harder to borrow from your 401k. Too many people would leave their job and not be able to pay back the loan.

I did have a number of people (all relatively young people) cash in their 401ks if they left the job. None wanted to hear my lecture about the effect of cashing in. :(

On the other hand, with 75 employees we had nearly 100% participation, if not 100%.

W2R 09-14-2008 12:03 PM

Quote:

Originally Posted by FIREdreamer (Post 713981)
No pension, just social security. But at least he is lucid about it all. He knows he'll have to work t'il the end...

All very well and good if he CAN work until the end. Unfortunately, a lot of people do become physically or mentally crippled/disabled as they age, and cannot work. I suppose that then, if they are destitute, they must hope for either the kindness of relatives or the state.

FIREd 09-14-2008 12:46 PM

Quote:

Originally Posted by Want2retire (Post 713987)
All very well and good if he CAN work until the end. Unfortunately, a lot of people do become physically or mentally crippled/disabled as they age, and cannot work.

Like many people it is a scenario he has been rather resistant to consider.

Quote:

Originally Posted by Want2retire (Post 713987)
I suppose that then, if they are destitute, they must hope for either the kindness of relatives or the state.

It would have to be the state. He has been a real jerk with us lately and his other kids have been unable/unwilling to help.

bd68 09-14-2008 03:38 PM

Quote:

Originally Posted by armor99 (Post 713874)
The thing that frightens me the most about this is that as a voting block, these folks are huge. I fear that as all of these folks realize they are "not going to make it", they will start trying to pass laws to take money out of my 401K or SS benefits.


I totally agree, and if that time comes we will need to work hard to try to make sure it does not happen. I is also one of the reasons that the basic theory of many on this board (know your expenses and when you can meet them then retire) has more and more appeal. The alternative of w*orking longer and saving more just increases the likelihood of the gov't coming up a scheme to get at it. I could see the Dems coming up with a "windfall savings tax"
Regards
bd68


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