Washington Post Article About People Raiding 401k Accounts

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Washington Post Article About People Raiding 401k Accounts

Postby deanbrew » Tue Jan 15, 2013 6:06 pm

I'm not certain this is the correct board for this, but some of the stats in the linked article are downright depressing, in the sense that it tells us a lot about both the economy and the populace's fiscal intelligence.

http://www.washingtonpost.com/business/economy/401k-breaches-undermining-retirement-security-for-millions/2013/01/14/f54a0e90-5e70-11e2-8acb-ab5cb77e95c8_story.html

A large and growing share of American workers are tapping their retirement savings accounts for non-retirement needs, raising broad questions about the effectiveness of one of the most important savings vehicles for old age.

More than one in four American workers with 401(k) and other retirement savings accounts use them to pay current expenses, new data show. The withdrawals, cash-outs and loans drain nearly a quarter of the $293 billion that workers and employers deposit into the accounts each year, undermining already shaky retirement security for millions of Americans.


In 2010, 28 percent of participants reported having an outstanding loan against their retirement accounts, an all-time high, according to a survey of 110 large employers by Aon Hewitt, a human resources consultancy. And nearly 7 percent of employees took hardship withdrawals that year — roughly a 40 percent increase since the recession, while 42 percent of workers cashed out their plans rather than rolling them over when they changed jobs.


I realized that too many people take money out of their retirement accounts for current expenses and spending, but I had no idea that the percentages were that high.

Overall, about a third of American households participate in 401(k)-type accounts, which hold a combined $3.5 trillion in assets. But a large portion of that money does not make it to retirement. A recent study by Boston College’s Center for Retirement Research found that the typical household approaching retirement age has an average of $120,000 in retirement savings, enough for roughly a $7,000-a-year annuity.


$120,000 for a household approaching retirement age? :shock:
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Re: Washington Post Article About People Raiding 401k Accoun

Postby dailybagel » Tue Jan 15, 2013 6:14 pm

In the spirit of contructiveness, what are the lessons we can take from this?

Here is one: maintaining a hefty emergency fund, to keep from having to dip into retirement savings?
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Re: Washington Post Article About People Raiding 401k Accoun

Postby dad2000 » Tue Jan 15, 2013 6:19 pm

A lousy retirement is the price people will pay for playing keep up with the Joneses...

I refuse to buy my kids the latest tablet, cell phone, and fashionable boots. I teach them to take care of what they do have. Being in the minority is quite a challenge.
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Re: Washington Post Article About People Raiding 401k Accoun

Postby awval999 » Tue Jan 15, 2013 6:26 pm

You have to realize that those here on this forum are a self-selection top-tier of savers.

Average Jane ane Joe will live on just Social Security and hopefully will have a paid off house. They won't be world travellers but they will watch free TV over the air and get by.
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Re: Washington Post Article About People Raiding 401k Accoun

Postby jeep5ter » Tue Jan 15, 2013 6:34 pm

The latest stats I have seen (2010), 54% of Americans have less than $25K in total savings, and of that group, half have less than $1,000.
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Re: Washington Post Article About People Raiding 401k Accoun

Postby jeffyscott » Tue Jan 15, 2013 7:51 pm

The replacement of pensions with 401Ks will result in the vast majority of Americans being quite poor in retirement.

I think most look at the retirement accounts as just some money they saved to do whatever with. I suspect many do not really even understand the concept of a pile of money being used to generate a regular stream of income for ordinary day-to-day expenses. It's just some extra money that they might use for large expenses from time-to-time, maybe to buy a car or take a trip or two. They are not going to retire on SS and $120K and think, "okay this means my spending must be limited to SS+$400 per month."
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Re: Washington Post Article About People Raiding 401k Accoun

Postby ofcmetz » Tue Jan 15, 2013 8:04 pm

It's sad to read.

As said before, this is why it's so important to have an emergency fund. For those in the work force, use whatever prestige you have to motivate an encourage those young bucks to save into their 401K. We can mentor some and teach them a better way.
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Re: Washington Post Article About People Raiding 401k Accoun

Postby pennstater2005 » Tue Jan 15, 2013 8:20 pm

I spoke to a young man today regarding his 401k held in a Roth no doubt. He began to tell me how he was going to tap it for some expense I can't remember. We talked awhile about the ramifications of doing so. Whether or not he listens is to be seen.
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Re: Washington Post Article About People Raiding 401k Accoun

Postby NorCalDad » Tue Jan 15, 2013 8:43 pm

deanbrew wrote:
Overall, about a third of American households participate in 401(k)-type accounts, which hold a combined $3.5 trillion in assets. But a large portion of that money does not make it to retirement. A recent study by Boston College’s Center for Retirement Research found that the typical household approaching retirement age has an average of $120,000 in retirement savings, enough for roughly a $7,000-a-year annuity.


$120,000 for a household approaching retirement age? :shock:

If that's the average, I'd hate to see the median.

For what it's worth, many young people I know are conscientious about saving in their 401(k) because they never had private pensions and are very skeptical about whether Social Security will be there for them in 35-40 years. Whether they contribute enough or avoid raiding those funds is another question.
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Re: Washington Post Article About People Raiding 401k Accoun

Postby tfb » Tue Jan 15, 2013 9:12 pm

This report is not consistent with data reported by Vanguard. Although the number of people cashing out appears large, the sum amount is actually very small.

https://institutional.vanguard.com/VGAp ... ericasaves

All in-service withdrawals during 2011 amounted to 1% of aggregate plan assets. Hardship withdrawals, a subset of in-service withdrawals, remained the same as 2010 and were taken by only about 2% of participants.

During 2011, about 30% of all participants could have taken their account as a distribution because they had separated from service in the current year or prior years. The majority of these participants (83%) continued to preserve their plan assets for retirement by either remaining in their former employer's plan or rolling over their savings to an IRA or new employer plan. In terms of assets, 96% of all plan assets available for distribution were preserved and only 4% were taken in cash.
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Re: Washington Post Article About People Raiding 401k Accoun

Postby bogleblitz » Tue Jan 15, 2013 9:48 pm

"Raiding 401k Accounts" subject seems a bit extreme. I thought hackers were stealing money from people's accounts.

Most of the people on this board seems rich. I keep reading people on this board people having more than 300k IRA/401ks.
I can totally understand people digging into their 401ks. It is hard for someone making less than 40k a year to save for 401k or save for an emergency fund.
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Re: Washington Post Article About People Raiding 401k Accoun

Postby Toons » Tue Jan 15, 2013 9:58 pm

Live beneath your means year after year decade after decade and save and invest every dollar you can
afford while you are working so that you might have some "gold" to spend in your golden years :happy
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Re: Washington Post Article About People Raiding 401k Accoun

Postby DickBenson » Wed Jan 16, 2013 1:41 am

Until about 25 years ago you were not able to take funds out of your TIAA retirement account, and at retirement your only option was to annuitize (similar to the structure of Social Security).

It worked! Although paternalistic, perhaps this is the model that others should consider....even the present TIAA.

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Re: Washington Post Article About People Raiding 401k Accoun

Postby rr2 » Wed Jan 16, 2013 2:29 am

DickBenson wrote:Until about 25 years ago you were not able to take funds out of your TIAA retirement account, and at retirement your only option was to annuitize (similar to the structure of Social Security).

It worked! Although paternalistic, perhaps this is the model that others should consider....even the present TIAA.

Dick

+1.

In addition to the total accumulation, what you should get from your retirement account annual statement is the amount of annuity that the current accumulation can purchase at various ages (similar to SS, eg. 62, 66+, 70). This can be a conservative estimate assuming a real return of about 2-3%. There can also be an estimate of the annuity amount based on future accumulation assuming current savings rate is continued. On the other hand, I suppose most people don't even look at their statements so all of this is probably useless.
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Re: Washington Post Article About People Raiding 401k Accoun

Postby fundtalker123 » Wed Jan 16, 2013 2:41 am

"Spread the wealth"
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Re: Washington Post Article About People Raiding 401k Accoun

Postby greg1172 » Wed Jan 16, 2013 3:29 am

this does not surprise me one bit. these are extremely difficult times for most people. just consider yourself fortunate to not be in this situation!
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Re: Washington Post Article About People Raiding 401k Accoun

Postby celia » Wed Jan 16, 2013 4:01 am

I take these articles with a grain of salt. There's no way any company can know how much you have in ALL your retirement accounts. All they see is the amount in traditional IRAs or 401k's, or the amount in Roths. They don't see what I'm doing when I move money between custodians or convert to Roths. They probably see a Roth conversion as $x leaving a traditional IRA and somewhere else someone is contributing $x to a Roth IRA. They certainly don't see what I have at other places.

Certainly, there are those who are not on the path to retirement, but I think most participants are too lazy to even be withdrawing until they actually quit working.
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Re: Washington Post Article About People Raiding 401k Accoun

Postby Bob's not my name » Wed Jan 16, 2013 5:53 am

In 2010, nearly 7 percent of employees took hardship withdrawals
This is shocking. I had no idea any Americans experienced hardship in 2010, never mind 7 percent :o

We are so much better than them because we are not enduring hardship. I can't understand why these losers choose hardship.
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Re: Washington Post Article About People Raiding 401k Accoun

Postby BBL » Wed Jan 16, 2013 8:01 am

by dailybagel » Tue Jan 15, 2013 6:14 pm

In the spirit of contructiveness, what are the lessons we can take from this?



I hope I'm not treading into forbidden waters but the thought I have every time I see these 'Americans are lousy savers' [and variations thereof] articles is that OASDI isn't going anywhere. Maybe I'm crazy but we can probably stop ringing that alarm.
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Re: Washington Post Article About People Raiding 401k Accoun

Postby leo383 » Wed Jan 16, 2013 8:22 am

I used to work in trust banking,and ran 401(k) accounts for lots of small businesses.

There is a subset of employees who view their 401(k) account as a forced savings emergency account. I had several participants tell me so, as they took out the fifth loan in ten years on their account.
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Re: Washington Post Article About People Raiding 401k Accoun

Postby jdilla1107 » Wed Jan 16, 2013 8:46 am

I question some of these studies. You can't just look at 401k balances to get a picture of people's retirement readiness. For example, I currently have a 401k balance of 14,000 and a net worth in the mid seven figures. This is because I imeediately roll old 401ks to iras, which this study can't see.

Also, I am currently 100% bonds in my 401k! Oh no, he doesn't understand stocks! (They can't see my large stock portfolio. )

I realize I am an exception to the average, but still.
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Re: Washington Post Article About People Raiding 401k Accoun

Postby Bob's not my name » Wed Jan 16, 2013 9:19 am

jdilla1107 wrote:I realize I am an exception to the average.
Are you? I don't know the answer but the US has a pretty mobile workforce. I have only about 10% of my savings in an old 401k and another 10% in my current 403b, so I guess a study like this would understate my savings by a factor of ten. I have no home equity, but many Americans have significant home equity.
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Re: Washington Post Article About People Raiding 401k Accoun

Postby Bob's not my name » Wed Jan 16, 2013 9:21 am

The Washington Post wrote:With federal policymakers eyeing cuts to Social Security benefits and Medicare to rein in soaring federal deficits, and traditional pensions in a long decline,
I think the Post's political agenda is clear. This is not an investing advice article.
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Re: Washington Post Article About People Raiding 401k Accoun

Postby NYBoglehead » Wed Jan 16, 2013 9:36 am

Bob's not my name wrote:
The Washington Post wrote:With federal policymakers eyeing cuts to Social Security benefits and Medicare to rein in soaring federal deficits, and traditional pensions in a long decline,
I think the Post's political agenda is clear. This is not an investing advice article.


Correct. This was done to highlight the Post's view that we are all screwed when it comes to retirement so absolutely no change should ever be made to Social Security. If someone suggested raising the retirement age in the year 2100 they would run articles talking about "draconian cuts" of retiree benefits.

Another poster absolutely nailed it when talking about the younger generation. I think that the millenials will be far better off than the baby boomers because most of us never had any expectation of getting a DB pension and we have a healthy skepticism of Social Security's ability to pay out future benefits. Some say the views on Social Security are extreme and unfounded, but if you plan on not getting a dime of it than whatever % of benefits can be paid out in decades to come will be an added bonus.
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Re: Washington Post Article About People Raiding 401k Accoun

Postby Grt2bOutdoors » Wed Jan 16, 2013 9:45 am

I've raided my savings account when I needed it, even to the point of nearly draining it. Does that make me a poor saver? The problem with these articles is data mining at a point in time and they fail to account for all resources available to the worker. Are there people raiding their accounts and will not contribute enough - yes, but I don't believe they are representative of a significant number of workers and pre-retirees.
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Re: Washington Post Article About People Raiding 401k Accoun

Postby Grt2bOutdoors » Wed Jan 16, 2013 9:53 am

NYBoglehead wrote:Another poster absolutely nailed it when talking about the younger generation. I think that the millenials will be far better off than the baby boomers because most of us never had any expectation of getting a DB pension and we have a healthy skepticism of Social Security's ability to pay out future benefits. Some say the views on Social Security are extreme and unfounded, but if you plan on not getting a dime of it than whatever % of benefits can be paid out in decades to come will be an added bonus.


I know Social Security will be there for generations to come, thought I would not exactly call it a bonus. It is a form of deferred savings - you paid into it some amount, now you will get some of that amount back. I don't necessarily agree that millenials, Gen Xers or Y'ers will be far better off - many are still putting off developing a savings plan of any sort - the best way to get it going is before you hit the workforce. It all goes back to personal financial courses not being taught/offered to these folks at the prime ages - 13-17 when it can start to sink into their heads.
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Re: Washington Post Article About People Raiding 401k Accoun

Postby deanbrew » Wed Jan 16, 2013 9:56 am

Lots of opinions and even good points being made.

I spoke to a young man today regarding his 401k held in a Roth no doubt. He began to tell me how he was going to tap it for some expense I can't remember. We talked awhile about the ramifications of doing so. Whether or not he listens is to be seen.


This attitude is, unfortunately, far too typical. Many people open their pension (IRA, Roth, 401k, whatever) statement and see they have tens of thousands of dollars and think "I could use this money today", not worrying (or realizing) what this means for their retirement and overall fiscal health.

Most of the people on this board seems rich. I keep reading people on this board people having more than 300k IRA/401ks.
I can totally understand people digging into their 401ks. It is hard for someone making less than 40k a year to save for 401k or save for an emergency fund.


I disagree. Certainly people are struggling, and many have few or no dollars to save or invest. But during my entire working life I never once thought about borrowing or taking money from my pension or IRA accounts. And that includes when I was making less than $17k a year and saving to buy our first home. We bought used cars, ate at home and vacations were on the cheap. My wife and I both had IRAs when we were under 25 years old, contributing $100 at a time, and never once thought about getting the money out.

There is a subset of employees who view their 401(k) account as a forced savings emergency account. I had several participants tell me so, as they took out the fifth loan in ten years on their account.


I have a very good friend who does that. I've tried to explain why he needs to keep that money in the account, but he's just terrible with finances.

I think the Post's political agenda is clear. This is not an investing advice article.
and
Correct. This was done to highlight the Post's view that we are all screwed when it comes to retirement so absolutely no change should ever be made to Social Security. If someone suggested raising the retirement age in the year 2100 they would run articles talking about "draconian cuts" of retiree benefits.


Absolutely correct. I am fully aware of the WaPo's bias... on many issues.
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Re: Washington Post Article About People Raiding 401k Accoun

Postby NYBoglehead » Wed Jan 16, 2013 10:07 am

Grt2bOutdoors wrote:
NYBoglehead wrote:Another poster absolutely nailed it when talking about the younger generation. I think that the millenials will be far better off than the baby boomers because most of us never had any expectation of getting a DB pension and we have a healthy skepticism of Social Security's ability to pay out future benefits. Some say the views on Social Security are extreme and unfounded, but if you plan on not getting a dime of it than whatever % of benefits can be paid out in decades to come will be an added bonus.


I know Social Security will be there for generations to come, thought I would not exactly call it a bonus. It is a form of deferred savings - you paid into it some amount, now you will get some of that amount back. I don't necessarily agree that millenials, Gen Xers or Y'ers will be far better off - many are still putting off developing a savings plan of any sort - the best way to get it going is before you hit the workforce. It all goes back to personal financial courses not being taught/offered to these folks at the prime ages - 13-17 when it can start to sink into their heads.


And I am sure that it will be there in some form myself. And I know that I will be paying into throughout my working years. My point was that if you plan on it replacing 0% of your income and save aggressively in order to get 100% of your needs from your accumulated savings, whatever your SS benefits are will only enhance your retirement years.
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Re: Washington Post Article About People Raiding 401k Accoun

Postby scrabbler1 » Wed Jan 16, 2013 10:16 am

In some cases, it is a lack of education which can cause people to drain retirement savings accounts.

My ladyfriend works for a small medical practice which had a profit sharing plan before it got taken over by a large area hospital in 2011. When that happened, the profit sharing accounts had to be dissolved. The new employer has a 403(b) plan so the PS account could be directly rolled into the 403(b) plan (which my ladyfriend did). But this was not greatly publicized, so many of the employees failed to do so by the deadline and received a cash-out of whatever they had in the PS plan. But in 2012 they got hit with some big tax bills because all of it got taxed as ordinary income (federal and state) plus the 10% penalty for early withdrawal. None of those consequences of inaction were made known to the employees when the rollover period was active. My ladyfriend at least knew to ask me if this could be done, and buried in the 403(b) plan's booklet were statements that it could be done along with application forms which were somewhat difficult to complete (we answered one question incorrectly but the benefits person caught it and fixed it).

I recall my ladyfriend telling me last April (i.e. tax time) how her uneducated coworkers thought she was some investing genius because she avoided those big tax bills and preserved her PS money! :D
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Re: Washington Post Article About People Raiding 401k Accoun

Postby mack123 » Wed Jan 16, 2013 10:21 am

As someone who used to work in a 401k call center for a major institution, i can confirm that lots of people raid their 401ks, and lots of people lack fiscal intelligence.

Some people even referred to their 401k as their emergency spending money. The best was people who used the salary deferrals as a forced way to save for holiday presents.
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Re: Washington Post Article About People Raiding 401k Accoun

Postby Beagler » Wed Jan 16, 2013 11:02 am

jeffyscott wrote:The replacement of pensions with 401Ks will result in the vast majority of Americans being quite poor in retirement.


Perhaps a little perspective is in order. The African mother who has to walk miles for water (look into what some people in that part of the world have to do to get water on a daily basis) is "quite poor."

Social Security was never intended to be the only pillar in retirement funding. Look at the Starbucks, taverns and other places where people choose to frequent for their discretionary spending. What do cigarettes cost these days? Alcohol? Redirect those dollars into personal savings, compounded over an adult lifetime, and see what they add up to. (I know a barber who quit smoking -- after several bouts of bronchitis -- and now proudly tells me that money goes into an IRA.)
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Re: Washington Post Article About People Raiding 401k Accoun

Postby 2stepsbehind » Wed Jan 16, 2013 11:45 am

It is easy to chalk it up to a lack of personal responsibility, but my guess is the vast majority of these "401k raiders" experienced a job loss, medical situation, or other major expense that prompted them to use the 401k funds. From a policy perspective then I question whether we should be encouraging 401k contributions beyond the match for many workers. Obviously, contributing to a roth is one alternative, but it seems to me that something like the Canadian Tax-Free Savings Accounts would also be a welcome addition. Bonus if it, like the 401k, could come directly out of employees' paychecks.
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Re: Washington Post Article About People Raiding 401k Accoun

Postby Bob's not my name » Wed Jan 16, 2013 11:59 am

There might be no penalty in a job loss situation, since you can roll the 401k to a TIRA and certain withdrawals are penalty-free. (I'm not familiar with 401k penalty rules, so maybe the rollover isn't even necessary in some cases.) As for regular taxes, in these sorts of emergencies your tax rate on the withdrawal should be no greater than, and probably less than, your rate at contribution, so the participation would still have worked to the participant's benefit.
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Re: Washington Post Article About People Raiding 401k Accoun

Postby Beagler » Wed Jan 16, 2013 1:24 pm

Grt2bOutdoors wrote:I know Social Security will be there for generations to come, thought I would not exactly call it a bonus. It is a form of deferred savings - you paid into it some amount, now you will get some of that amount back.



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Re: Washington Post Article About People Raiding 401k Accoun

Postby caroljm36 » Wed Jan 16, 2013 2:09 pm

I'm on the 401k committee where I work and we decided from the get-go that we didn't want people to be able to borrow their savings. That's one reason we have only about 80 participants out of a possible 200.

But at least when someone signs up for it, they know it's a serious proposition and not just some mad money they're putting away. Several even keep the money there after they leave, which I would never do myself. It would go straight to VG or Fidelity.
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Re: Washington Post Article About People Raiding 401k Accoun

Postby Boglenaut » Wed Jan 16, 2013 2:13 pm

caroljm36 wrote:I'm on the 401k committee where I work and we decided from the get-go that we didn't want people to be able to borrow their savings. That's one reason we have only about 80 participants out of a possible 200.

But at least when someone signs up for it, they know it's a serious proposition and not just some mad money they're putting away. Several even keep the money there after they leave, which I would never do myself. It would go straight to VG or Fidelity.


Which funds do you offer, and at what fees?

I usually roll mine over..but if I leave my current job the funds will stay because the plan is a top-notch Boglehead-friendly one.
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Re: Washington Post Article About People Raiding 401k Accoun

Postby MnD » Wed Jan 16, 2013 2:22 pm

jeep5ter wrote:The latest stats I have seen (2010), 54% of Americans have less than $25K in total savings, and of that group, half have less than $1,000.


60% have less than $25K in the 2012 report. 30% less than $1000.
10% each in the $25K-50K, 50K-100K, 100K-250K and greater than $250K categories.

http://www.ebri.org/pdf/surveys/rcs/201 ... 69_RCS.pdf

Total Savings and Investment Reported by Workers, Among Those Providing a Response
(not including value of primary residence or defined benefit plans)
2002 2007 2008 2009 2010 2011 2012
Less than $1,000 50% 35% 36% 20% 27% 29% 30%
$1,000 ‐ $9,999 19 16 17 18
$10,000 ‐ $24,999 13 13 13 11 10 12
$25,000 ‐ $49,999 13 10 12 11 12 11 10
$50,000 ‐ $99,999 15 13 12 12 11 9 10
$100,000 ‐ $249,999 15 15 15 12 11 14 11
$250,000 or more 7 14 12 12 11 10 10
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Re: Washington Post Article About People Raiding 401k Accoun

Postby bdpb » Wed Jan 16, 2013 2:44 pm

caroljm36 wrote:I'm on the 401k committee where I work and we decided from the get-go that we didn't want people to be able to borrow their savings. That's one reason we have only about 80 participants out of a possible 200.


Why would you make that decision for other people? They may or may not make the right decision, but please let them decide for themselves.

Let people borrow money from their 401k. They may not be able to get financing any other way. You may not think it's right, but it may still be an optimal solution for them.

You may be adding to the problem of people not saving money in their 401k in the first place. As your numbers point out, many people will not save in their 401k if they can't get to the money until they are retired. Those same people are likely not to save at all if it isn't take right out of their paycheck.
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Re: Washington Post Article About People Raiding 401k Accoun

Postby Bob's not my name » Wed Jan 16, 2013 2:45 pm

caroljm36 wrote:I'm on the 401k committee where I work and we decided from the get-go that we didn't want people to be able to borrow their savings. That's one reason we have only about 80 participants out of a possible 200.
Yes, studies have shown that a loan program increases participation.
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Re: Washington Post Article About People Raiding 401k Accoun

Postby assumer » Wed Jan 16, 2013 3:10 pm

Boglenaut wrote:I usually roll mine over..but if I leave my current job the funds will stay because the plan is a top-notch Boglehead-friendly one.


Is there a disadvantage to rolling over? It seems like an easy way to consolidate things and make it simpler, if there are no fees or taxes for rolling over 401k's.
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Re: Washington Post Article About People Raiding 401k Accoun

Postby Dianne » Wed Jan 16, 2013 3:17 pm

bdpb wrote:
caroljm36 wrote:I'm on the 401k committee where I work and we decided from the get-go that we didn't want people to be able to borrow their savings. That's one reason we have only about 80 participants out of a possible 200.


Why would you make that decision for other people? They may or may not make the right decision, but please let them decide for themselves.

Let people borrow money from their 401k. They may not be able to get financing any other way. You may not think it's right, but it may still be an optimal solution for them.

You may be adding to the problem of people not saving money in their 401k in the first place. As your numbers point out, many people will not save in their 401k if they can't get to the money until they are retired. Those same people are likely not to save at all if it isn't take right out of their paycheck.


Allowing loans increases the administrative costs, which affects everyone in the plan. The costs sometimes show up in the form of poor fund choices; a third-party administrator may offer to cover all the administrative costs if the employer will agree to a bunch of high expense ratios. The serious buy-and-hold savers are better off if they don't have to share the retirement plan with people who want to use it for other purposes.
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Re: Washington Post Article About People Raiding 401k Accoun

Postby Harold » Wed Jan 16, 2013 3:31 pm

Dianne wrote:
bdpb wrote:
caroljm36 wrote:I'm on the 401k committee where I work and we decided from the get-go that we didn't want people to be able to borrow their savings. That's one reason we have only about 80 participants out of a possible 200.


Why would you make that decision for other people? They may or may not make the right decision, but please let them decide for themselves.

Let people borrow money from their 401k. They may not be able to get financing any other way. You may not think it's right, but it may still be an optimal solution for them.

You may be adding to the problem of people not saving money in their 401k in the first place. As your numbers point out, many people will not save in their 401k if they can't get to the money until they are retired. Those same people are likely not to save at all if it isn't take right out of their paycheck.


Allowing loans increases the administrative costs, which affects everyone in the plan. The costs sometimes show up in the form of poor fund choices; a third-party administrator may offer to cover all the administrative costs if the employer will agree to a bunch of high expense ratios. The serious buy-and-hold savers are better off if they don't have to share the retirement plan with people who want to use it for other purposes.

There's an even better reason why caroljim's position could be eminently appropriate.

The primary reason companies offer retirement programs is to manage their workforce by offering a mechanism for older employees to support themselves when they are no longer productively serving the companies. They're not in the business of setting up savings plans for their employees to withdraw from at their leisure.

If a company concludes that offering a loan option increases plan participation, and increases the likelihood of employees being able to retire from the workforce, then perhaps they should offer that option. If a company views otherwise, then a loan option may not be at all suitable.

caroljim has apparently concluded the latter. If it serves herhis company well, then it is the right decision.
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Re: Washington Post Article About People Raiding 401k Accoun

Postby bdpb » Wed Jan 16, 2013 4:23 pm

Harold wrote:
Dianne wrote:
bdpb wrote:
caroljm36 wrote:I'm on the 401k committee where I work and we decided from the get-go that we didn't want people to be able to borrow their savings. That's one reason we have only about 80 participants out of a possible 200.


Why would you make that decision for other people? They may or may not make the right decision, but please let them decide for themselves.

Let people borrow money from their 401k. They may not be able to get financing any other way. You may not think it's right, but it may still be an optimal solution for them.

You may be adding to the problem of people not saving money in their 401k in the first place. As your numbers point out, many people will not save in their 401k if they can't get to the money until they are retired. Those same people are likely not to save at all if it isn't take right out of their paycheck.


Allowing loans increases the administrative costs, which affects everyone in the plan. The costs sometimes show up in the form of poor fund choices; a third-party administrator may offer to cover all the administrative costs if the employer will agree to a bunch of high expense ratios. The serious buy-and-hold savers are better off if they don't have to share the retirement plan with people who want to use it for other purposes.

There's an even better reason why caroljim's position could be eminently appropriate.

The primary reason companies offer retirement programs is to manage their workforce by offering a mechanism for older employees to support themselves when they are no longer productively serving the companies. They're not in the business of setting up savings plans for their employees to withdraw from at their leisure.

If a company concludes that offering a loan option increases plan participation, and increases the likelihood of employees being able to retire from the workforce, then perhaps they should offer that option. If a company views otherwise, then a loan option may not be at all suitable.

caroljim has apparently concluded the latter. If it serves herhis company well, then it is the right decision.


There may be logical reasons for a company not offering loans from their 401k but I don't see how those other reasons apply in this thread. The whole context of the thread is "people are dumb for withdrawing from their 401k" and the post was "we didn't want people to borrow their savings" presumably "because we think that's a dumb thing to do."
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Re: Washington Post Article About People Raiding 401k Accoun

Postby Harold » Wed Jan 16, 2013 4:44 pm

bdpb wrote:There may be logical reasons for a company not offering loans from their 401k but I don't see how those other reasons apply in this thread. The whole context of the thread is "people are dumb for withdrawing from their 401k" and the post was "we didn't want people to borrow their savings" presumably "because we think that's a dumb thing to do."

You were criticizing caroljim for operating her company's 401(k) without offering a loan option. I simply pointed out that your criticism was unwarranted.
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Re: Washington Post Article About People Raiding 401k Accoun

Postby Random Musings » Wed Jan 16, 2013 5:24 pm

Article doesn't surprise me at all. At our company, a decent percentage of people have raided their 401K accounts for various reasons.

As shown by savings, the average American lives paycheck to paycheck more or less. We Bogleheads are the outlier group - but we're a fat tail on the right side of the distribution curve :D .

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Re: Washington Post Article About People Raiding 401k Accoun

Postby 555 » Wed Jan 16, 2013 5:50 pm

Perhaps when these people have finished raiding their 401k accounts , they'll start calling for ways to raid our 401k accounts too.
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Re: Washington Post Article About People Raiding 401k Accoun

Postby Default User BR » Wed Jan 16, 2013 5:54 pm

assumer wrote:Is there a disadvantage to rolling over? It seems like an easy way to consolidate things and make it simpler, if there are no fees or taxes for rolling over 401k's.

There are a few:

1. Possible better protection from judgments that with IRAs, varies by state.

2. Qualified plans sometimes have offerings that aren't available at the retail level, like institutional funds or stable-value.

3. Able to withdraw without penalty if separated from service at age 55+.


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Re: Washington Post Article About People Raiding 401k Accoun

Postby NYBoglehead » Wed Jan 16, 2013 6:07 pm

555 wrote:Perhaps when these people have finished raiding their 401k accounts , they'll start calling for ways to raid our 401k accounts too.


Good one. These articles are always designed to pull at heart strings. Are they taking money out of the 401k to pay for food and diapers, or are they taking it out to make the huge car payment, pay off their AMEX-financed shopping spree, or settle the tab from their last vacation? I don't know the answer, I'm just asking the question.

The beauty (of the several, IMO) of contributing to a 401k is that you can automatically grant yourself a raise if you need a little extra cash. You can always pare back on your contributions or stop them all together. Taking the money already put in though is almost always a mistake to do.
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Re: Washington Post Article About People Raiding 401k Accoun

Postby DickBenson » Wed Jan 16, 2013 6:21 pm

You cannot raid your Social Security account, and you could not raid the old TIAA retirement accounts. From a societal viewpoint, you should not be able to raid any retirement account that has been given government benefits such as tax deferral.

The purpose of these retirement accounts is not to build wealth, nor to act as an emergency fund, but to build resources that will keep you off the government and/or society's back upon retirement.

Dick
Last edited by DickBenson on Wed Jan 16, 2013 6:23 pm, edited 1 time in total.
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Re: Washington Post Article About People Raiding 401k Accoun

Postby Boglenaut » Wed Jan 16, 2013 6:23 pm

Default User BR wrote:
assumer wrote:Is there a disadvantage to rolling over? It seems like an easy way to consolidate things and make it simpler, if there are no fees or taxes for rolling over 401k's.

There are a few:

1. Possible better protection from judgments that with IRAs, varies by state.

2. Qualified plans sometimes have offerings that aren't available at the retail level, like institutional funds or stable-value.

3. Able to withdraw without penalty if separated from service at age 55+.


Brian



I knew about these, but the primary reason is #2. S&P ER = .007% for example (not a typo). Plus, I hate being out of the market while things roll over, so try to be very minimal in how often I do it. I may re-examine this as I get older, but for now no hurry to move (unlike some other plans I had).
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