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 +?
Depleting 401K
- Thread starter ferco
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W2R
Moderator Emeritus
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.
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
...
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
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
...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
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Achiever51
Thinks s/he gets paid by the post
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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.
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
Recycles dryer sheets
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.
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.
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.
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%.
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%.
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
Moderator Emeritus
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.
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
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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
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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.
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
Recycles dryer sheets
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
Recycles dryer sheets
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.
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...
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%.
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
Moderator Emeritus
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.
Like many people it is a scenario he has been rather resistant to consider.
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.
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
DangerMouse
Thinks s/he gets paid by the post
We have a friend who has wiped out his 401k because he is too lazy to work. Threw in a good job that paid close on $200k with benefits because he didn't like management. Only had enough saved to survive for 3 mos. which has been and gone. However, rather than be a big boy and suck it up and go and get a job we think he has hit on mummy to give him money to tide him over as he has exhausted all other avenues open to him.
I hate to think what his retirement is going to be like living on $1k a month of SS.
I hate to think what his retirement is going to be like living on $1k a month of SS.
harley
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
I was waiting for you to finish that sentence...they seem to like to eat. I think if I had to continue working, I would convince myself that it was my decision, and I liked it too.
I have been talking to my only [-]cheapskate [/-]frugal friend for years about how people aren't saving and are living either right at or well above their means. I could't see how it could continue that way. He tended to agree. And now as things are getting more difficult, I'm starting to see a lot of people sweating. I agree, they aren't stepping down yet. But I think they will have to, if hard times stay around for a few years or a decade. When you are living on the edge it's too easy to slip.
haha
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
LOL. You may be right. Even pretty good friends would not normally tell you that they had messed up totally. They would spin it as best they could.
I know a couple of women who while they would not begin to admit it must find some lover with some money who will help them out. Everytime either one is laid off she gets a worse job going back. It isn't easy after 50. They are both cute and can find lots of dates, but so far no bed and board in the deal.
The interesting thing is that I have seen it work. A dumb enough guy with the pension or assets happens by just when he is needed.
At least one of these gals kicked out a perfectly good husband because he couldn't deal with her New Age Attitudes.
Ha
Gardnr
Recycles dryer sheets
Yes, the powers of rationalization and self deceit are very great, aren't they?Yep, for years I've been looking around and wondering how long this unsustainable trend could continue. And I've been a rather lone wolf during this time too, as I've not personally known any others who've really live much below their means, much less saved 40-50% of their income.
One thing I've enjoyed about this forum is finding like-minded folks to relate to. DW's family is going to be dumbfounded when I RE, although they should realize that we must be in good financial condition.
My parents were hard working people. They had long careers (40-42 years) and really enjoyed working. But, as they got older, working became harder and harder, not because they didn't like their jobs anymore, but because working started to take a toll on them physically. Clearly they could have continued to work if they had to, but I am pretty sure that the "love" of working would have disappeared with each passing year.
So when they were given the opportunity to retire (at 60), they took it.
My dad's small company was acquired by a multinational corporation when he turned 55. After working 37 years for a small company (and really loving it), he had a hard time keeping up with the demand of a modern multinational corporation. At age 55, he was required to learn a foreign language and he was frequently "asked" to travel all over the world to attend meetings and visit subsidiaries. While the change of pace was welcomed at first, it started to take a toll on him (he has limited vision and mobility). He still loved the job very much, but physically he knew that he couldn't keep up with the job's demands. So when he qualified for retirement he went for it and from what I can see, he is not regretting this decision one bit. I am a bit surprised actually because my dad always took great pride in his career achievements and I had a hard time picturing him out of a job (he has never been unemployed once in his life).
My mom always worked for small companies and while she loved working, her stressful work environment had started to have a negative impact on her health. In the 5 years prior to her retirement she came down with a number of more or less serious illnesses that the doctors attributed in part to high stress levels. It became really difficult for her to continue working so when she qualified for full retirement benefits she retired. Her health has improved (though she misses the social interactions she had at work). She goes back to work some time to time when her replacement is on vacation or sick leave and she finds it very very difficult to transition back to work. She is glad she doesn't have to work on a full time basis anymore.
Among family members who are in their sixties and seventies, the only one who is still working (and claiming to like it) is also the only one who can't afford to retire.
