401(k) breaches undermining retirement security for millions
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.
With federal policymakers eyeing cuts to Social Security benefits and Medicare to rein in soaring federal deficits, and traditional pensions in a long decline, retirement savings experts say the drain from the accounts has dire implications for future retirees.
“We’re going from bad to worse,” said Diane Oakley, executive director of the National Institute on Retirement Security. “Already, fewer private-sector workers have access to stable pension plans. And the savings in individual retirement savings accounts like 401(k) plans — which already are severely underfunded — continue to leak out at a high rate.”
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Let me give you some insight from a mortgage broker view. I cannot tell you how many clients are tapping their 401K accounts for home purchases, especially now here in Florida where homes are such “bargains”. Oddly enough, the value that can be used as far as underwriting purposes is only 70%. i.e. whatever they have in 401K underwriting only recognizes 70% of that total as being actual funds. That should tell us all something when there’s a 30% setaside. Can anyone (besides Obama) spell recovery? The 30% is supposed to represent taxes and penalties but when it’s a loan against the 401K the instrument still remains tax free, as long as the borrower never defaults on the loan against it. And here we have the question: but why would a borrower default on a loan? Oh yeah, I almost forgot…like all the politicians said all those people who defaulted are ‘deadbeats’! All these borrowers overextended themselves, so they said. Funny how all these defaults started occuring when the unemployment rose high above normal levels. Funny how people just did not have the money or jobs to pay their bills anymore. Funny how the foreclosures brought on by this high unemployment brought out the “fraud”, not the other way around! How many lawsuits were filed against banks by borrowers NOT in foreclosure? Then ask yourself what really caused the unemployment to soar to such levels? Like many others on this site for many years have touted that it was all a ponzi scheme from the beginning and I am talking about going back to the 90’s. It’s all there if you just do the research.