401(k) breaches undermining retirement security for millions


By zzyzzx   Follow   Tue, 15 Jan 2013, 7:42am   1,229 views   31 comments
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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.

“What you have is 401(k) participants voting with their wallets saying they would much rather use this money for other purposes.

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.

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  1. Call it Crazy


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    1   8:00am Tue 15 Jan 2013   Share   Quote   Permalink   Like (1)   Dislike (1)  

    zzyzzx says

    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.

    Yep, we are in an economic recovery.... Obama said so!!!

    FORWARD!!!!

  2. CaptainShuddup


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    2   8:30am Tue 15 Jan 2013   Share   Quote   Permalink   Like (1)   Dislike (1)  

    Then as if pulling from their 401K isn't detrimental to quality of retirement they'll afford. The Government then gives you another Fuckyou very much, by penalizing you, for taking your own freaking money, thus money from the bank's CEO personal change purse.

    People should be in charge of their own future. That includes retirement and health. Both of these sectors would be much healthier if Marge from HR wasn't the sole decider of how and were you get both.

    The one and only possitive thing I "HOPE" will come from Obamacare, will be. People wont be tethered to a company they despise and loathe, just because of the "bennies"(Which they over pay for) like Health insurance because they've got chronic ailment that keeps them there.

    Companies will really have to sweeten the pot, like providing healthcare for the whole family with out any premiums or out of pocket expenses.

    You know like you'd expect from an insurance that you are already paying for.

  3. Peter P


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    3   8:40am Tue 15 Jan 2013   Share   Quote   Permalink   Like   Dislike   Protected  

    I fully expect to tap my 401K before retirement. I will probably withdraw before the boomers retire en masse.

  4. mell


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    4   9:06am Tue 15 Jan 2013   Share   Quote   Permalink   Like (1)   Dislike  

    Peter P says

    I fully expect to tap my 401K before retirement. I will probably withdraw before the boomers retire en masse.

    It could be advantageous that way (even with the penalty) if you project continuously rising taxes.

  5. gbenson


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    5   10:37am Tue 15 Jan 2013   Share   Quote   Permalink   Like (2)   Dislike  

    Everyone I know who is near to, or has reached, retirement age, HATES their 401k because they were told if they contributed they'd earn a healthy return and retire comfortably.

    The reality is that many of them were utterly raped by the markets and have had to go back to work.

  6. Peter P


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    6   10:58am Tue 15 Jan 2013   Share   Quote   Permalink   Like   Dislike   Protected  

    mell says

    Peter P says

    I fully expect to tap my 401K before retirement. I will probably withdraw before the boomers retire en masse.

    It could be advantageous that way (even with the penalty) if you project continuously rising taxes.

    Also there can be new restrictions. Besides, they can find a way to nationalize private retirement accounts.

    Do we even technically "own" those accounts?

  7. Call it Crazy


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    7   11:00am Tue 15 Jan 2013   Share   Quote   Permalink   Like   Dislike (1)  

    Peter P says

    Also there can be new restrictions. Besides, they can find a way to nationalize private retirement accounts.

    Do we even technically "own" those accounts?

    Maybe you should withdraw it all out now before "they" do...

  8. ducsingle5313


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    8   11:03am Tue 15 Jan 2013   Share   Quote   Permalink   Like   Dislike  

    The typical household approaching retirement age has an average of $120,000 in retirement savings? I've read other articles that the average Baby Boomer only has $30k in retirement savings.

  9. lostand confused


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    9   11:14am Tue 15 Jan 2013   Share   Quote   Permalink   Like   Dislike  

    gbenson says

    Everyone I know who is near to, or has reached, retirement age, HATES their 401k because they were told if they contributed they'd earn a healthy return and retire comfortably.


    The reality is that many of them were utterly raped by the markets and have had to go back to work.

    Sad but true. I remember that Enron lady who had a million dollar worth of Enron stock in her account-she was not allowed to sell it, but the executives were and she lost eveyrthing.

  10. finehoe


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    10   11:16am Tue 15 Jan 2013   Share   Quote   Permalink   Like (1)   Dislike  

    ducsingle5313 says

    The typical household approaching retirement age has an average of $120,000 in retirement savings? I've read other articles that the average Baby Boomer only has $30k in retirement savings.

    Either way, it's not enough to live on.

  11. errc


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    11   11:30am Tue 15 Jan 2013   Share   Quote   Permalink   Like   Dislike  

    gbenson says

    Everyone I know who is near to, or has reached, retirement age, HATES their 401k because they were told if they contributed they'd earn a healthy return and retire comfortably.

    The reality is that many of them were utterly raped by the markets and have had to go back to work.

    This is just the beginning. Wait till the word gets out, and none of us younger folk bother to participate. Then who will the sell to?

  12. Peter P


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    12   11:37am Tue 15 Jan 2013   Share   Quote   Permalink   Like (1)   Dislike   Protected  

    Call it Crazy says

    Peter P says

    Also there can be new restrictions. Besides, they can find a way to nationalize private retirement accounts.

    Do we even technically "own" those accounts?

    Maybe you should withdraw it all out now before "they" do...

    Tempting...

    Mine is all in government bonds. Perhaps it will drop after stocks do.

    It is more tax efficient to withdraw in a low AGI year.

  13. Kevin


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    13   10:24pm Tue 15 Jan 2013   Share   Quote   Permalink   Like (1)   Dislike  

    If you are in your 50s and your 401k allocation was less than 75% bonds, your fund manager was grossly negligent (or, more likely, you ignored their guidelines and decided to gamble instead).

    If you're only 40, though, worrying about your 401k balance is idiotic. You aren't even halfway through your prime working years.

    I don't know why anybody would take an early withdrawal from their 401k. A loan, sure, but unless you're getting a 100% match, the penalty isn't worth it.

  14. Kevin


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    14   10:27pm Tue 15 Jan 2013   Share   Quote   Permalink   Like   Dislike  

    finehoe says

    ducsingle5313 says

    The typical household approaching retirement age has an average of $120,000 in retirement savings? I've read other articles that the average Baby Boomer only has $30k in retirement savings.

    Either way, it's not enough to live on.

    120k is more than enough to live on if you own your home outright. A 3% annual return (bond interest or safe stock dividends alone will pay more) will cover you.

    $30k wont, but I doubt many people have that. More likely its 50% of people have zero and 20% have over $100k, skewing the average way up.

  15. Peter P


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    15   10:28pm Tue 15 Jan 2013   Share   Quote   Permalink   Like (1)   Dislike   Protected  

    Of course I did it for the match and the AGI reduction.

  16. EBGuy


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    16   10:37pm Tue 15 Jan 2013   Share   Quote   Permalink   Like (1)   Dislike  

    Kevin says: 120k is more than enough to live on if you own your home outright. A 3% annual return (bond interest or safe stock dividends alone will pay more) will cover you.
    I think you may be off by an order of magnitude. Perhaps you mean $1.2 million? At 3% this gives you $36k per year.

  17. Peter P


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    17   10:44pm Tue 15 Jan 2013   Share   Quote   Permalink   Like (1)   Dislike   Protected  

    120K is enough? Did you mean 120K ounces of gold?

    Alas, the only amount enough is MORE.

    Enough means you want no more. More is always better.

  18. Ceffer


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    18   11:00pm Tue 15 Jan 2013   Share   Quote   Permalink   Like (2)   Dislike  

    The 401k breaches are by the OWNERS of the accounts, themselves.

    Are we now in an era where SELF victimization and foolish planning calls for pity and rants against any identifiable third party?

    This is where self pity rationalizing becomes detached from all forms of responsibility and reality.

    Hey, where's all my 401K money? Duh, I spent it and paid massive taxes and penalties on it. If you didn't spend the money, you would still have it, and a lot more, to take it out at retirement with no penalties, double Duh.

    But there still must be somebody to blame, where are they? I'm going to sue them!

  19. Kevin


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    19   12:28am Wed 16 Jan 2013   Share   Quote   Permalink   Like   Dislike  

    EBGuy says

    Kevin says: 120k is more than enough to live on if you own your home outright. A 3% annual return (bond interest or safe stock dividends alone will pay more) will cover you.

    I think you may be off by an order of magnitude. Perhaps you mean $1.2 million? At 3% this gives you $36k per year.

    Nope, I was actually referring to the ~12 years that people live after retirement. 3% would let you stretch your $120k for about that long, providing about $15k/year (plus SSI). This is more than enough for somebody without a mortgage payment.

    Peter P says

    120K is enough? Did you mean 120K ounces of gold?

    Alas, the only amount enough is MORE.

    Enough means you want no more. More is always better.

    You are a sad person.

    Ceffer says

    Are we now in an era where SELF victimization and foolish planning calls for pity and rants against any identifiable third party?

    I wouldn't go that far, but I do think that fund managers should be giving better advice and realistic projections for retirement. Not having funds in stocks when you're old, not having bonds when you're young, etc.

    The guidelines that vanguard provides me for my 401k are laughably bad, and I'm a college educated professional. I can only imagine how confused some food service worker must be.

    Moving away from pensions as a retirement model may prove to be the biggest collective financial disaster in our history. The majority of the baby boomers are going to retire with nothing, and will wind up putting pressure on social security to pay more.

  20. Ceffer


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    20   2:40am Wed 16 Jan 2013   Share   Quote   Permalink   Like   Dislike  

    Vanguard usually recommends a 60/40 stock/bond split, even if you are older, on the presumption that you may still be in the stock market for another 20-30 years.

    Inflation protected securities are boring, but provide a reasonably consistent 7.2 percent over time, and some insurance against inflation. However, they don't provide the casino like thrill when the stock market surges.

  21. zzyzzx


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    21   6:17am Wed 16 Jan 2013   Share   Quote   Permalink   Like   Dislike  

    Kevin says

    Nope, I was actually referring to the ~12 years that people live after retirement. 3% would let you stretch your $120k for about that long, providing about $15k/year (plus SSI). This is more than enough for somebody without a mortgage payment.

    Oh, you mean it's enough if you draw down your principle. IMO not a good idea, unless you like the idea of a 50% chance of outliving your assets and assume no real inflation.

  22. errc


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    22   6:56am Wed 16 Jan 2013   Share   Quote   Permalink   Like (1)   Dislike  

    I can only imagine how confused some food service worker must be.

    Not nearly as confused as you seem to be about the reality of the world you live in, to think that food service workers have 401ks

    Entering retirement with a house paid off free and clear, and 120k in savings, won't allow for much "living", unless you reside in somewhere with the absolute lowest cost of living in the country

    You assume this allows for 15k of disposable income per year (considering that your SS check will cover your property tax and insurance, your car insurance, and your supplemental health insurance and the littany of drug copays). That leaves 40$ per day to live off of. I guess you can eat road kill and dumpster dive for spoiled hot dogs and stale bread, or just eat soiled cardboard. But if you don't have access to these things in walking distance in your old age, gas will eat into your 40 quickly. Let's hope there's no car repairs, or worse yet, house repairs. Then there's kittly litter and cat food, the cable bill, your utilities for heat and AC and keeping the lights on. Nevermind, there's no point in explaining this to someone so dense,,,carry on in your fantasy world and blame republicans

  23. Kevin


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    23   8:16am Wed 16 Jan 2013   Share   Quote   Permalink   Like   Dislike  

    Ssi + $15k per year is more than the median household income. It is beyond adequate. I know several retirees getting by just fine on less.

    Yes, food service workers have 401ks. Some even get a nice employer match.

  24. errc


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    24   8:56am Wed 16 Jan 2013   Share   Quote   Permalink   Like (1)   Dislike  

    Maximum monthly SS draw is 2500
    Average monthly SS draw is 1200

    so I agree, if you are ok with counting on dieing ass broke by your 78th birthday, you can live on a 120k 401k with a house paid off free and clear, and your social security check, so long as nothing unexpected happens. But you better be healthy and content with staring at your dining room wall and eating expired pb n j and dented can goods from the discount grocer, and live in a low cost of living area. But it certainly isn't the golden years of retirement that eneration was told that retirement would be

  25. Peter P


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    25   9:39am Wed 16 Jan 2013   Share   Quote   Permalink   Like (1)   Dislike   Protected  

    Kevin says

    Ssi + $15k per year is more than the median household income. It is beyond adequate. I know several retirees getting by just fine on less.

    Yes, food service workers have 401ks. Some even get a nice employer match.

    What's the point of retirement if you can't take back to back cruises with a butler?

  26. Kevin


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    26   9:57am Wed 16 Jan 2013   Share   Quote   Permalink   Like   Dislike  

    errc says

    Maximum monthly SS draw is 2500

    Average monthly SS draw is 1200

    so I agree, if you are ok with counting on dieing ass broke by your 78th birthday, you can live on a 120k 401k with a house paid off free and clear, and your social security check, so long as nothing unexpected happens. But you better be healthy and content with staring at your dining room wall and eating expired pb n j and dented can goods from the discount grocer, and live in a low cost of living area. But it certainly isn't the golden years of retirement that eneration was told that retirement would be

    You have no idea what things actually cost, do you?

    Exclusive of housing, I support a wife and 4 children with a budget of $5000 a month. I save everything else. We live extremely well, in a high cost of living city. Half of that $5000 is for things that I won't need when my kids are grown.

    When I was single, my total income was under $30k for years and I lived just fine -- including housing payments!

    $20-30k a year is more than enough for a single / retiree couple to live on happily. Yes, including travel and recreation. The proof is the millions of retirees living on less.

    The only people who get to spend their retirement in luxury are the people who spent their working lives in luxury.

    There's nothing wrong with dying broke, either. You know you can't take it with you, right?

  27. finehoe


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    27   10:05am Wed 16 Jan 2013   Share   Quote   Permalink   Like (1)   Dislike  

    Kevin says

    There's nothing wrong with dying broke, either. You know you can't take it with you, right?

    Not a problem if you know when you're going to die. Otherwise...

  28. Peter P


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    28   10:14am Wed 16 Jan 2013   Share   Quote   Permalink   Like   Dislike   Protected  

    Perhaps Logan should not have run.

  29. dublin hillz


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    29   2:19pm Wed 16 Jan 2013   Share   Quote   Permalink   Like   Dislike  

    Kevin says

    The only people who get to spend their retirement in luxury are the people
    who spent their working lives in luxury.

    It is perhaps possible to live way under your means while you are working, save/invest a bunch of money and generate great return and then cash in during retirement and then increase your standard of living. But it seems like a bad gamble to trade your best years for this potential payoff when you are way older and presumably have less energy to live life to the fullest.

  30. Kevin


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    30   2:54pm Wed 16 Jan 2013   Share   Quote   Permalink   Like   Dislike  

    dublin hillz says

    Kevin says

    The only people who get to spend their retirement in luxury are the people

    who spent their working lives in luxury.

    It is perhaps possible to live way under your means while you are working, save/invest a bunch of money and generate great return and then cash in during retirement and then increase your standard of living. But it seems like a bad gamble to trade your best years for this potential payoff when you are way older and presumably have less energy to live life to the fullest.

    Exactly.

    I max out my 401k and get a 50% match, but I save the rest of myoney for fun things like vacations and a nice house.

  31. thunderlips11


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    31   2:57pm Wed 16 Jan 2013   Share   Quote   Permalink   Like   Dislike  

    The solution is to increase wages, or allow for inflation.

    The 1987-2007 idea of keeping wages flat but allowing easy credit backed by rapid rises in the stock market and/or real estate market failed.

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