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30% Of People With A 401(k) Have Taken Out A Loan Against It: New All Time Record
About a year ago Zero Hedge posted an article titled: "Record Number Of Americans Using Retirement Funds As Source Of Immediate Cash" after a report by Fidelity uncovered that "plan participants with loans outstanding against their 401(k) accounts had reached 22 percent versus 20 percent a year earlier." It is now time to revisit this very important topic because if recent press reports are true, last year's record number has just increased by another 50%. "On "The Early Show" Thursday, financial journalist and Newsweek
columnist Joanne Lipman said, "Right now we have 30 percent of people
who have 401(k)s have loans against their 401(k)s, which is a historic
high. And the problem is, it's growing like crazy: By 2014, we're
expecting to see 30 million people take loans against their 401(k)s." The raiding of the last ditch piggybank is on, and who can blame them? With banks setting the example of always reverting to the Discount Window (or the Excess Reserve stash as is now trendy) when in trouble, ordinary working Americans are merely following in the footsteps of their financially more "literate" betters. Unfortunately, unlike the "depositor" institutions, nobody will replenish these funds should they not be repaid and the retirement money is gone for good.
CBS News explains why raiding your 401(k) is so easy a caveman can do it:
Sheri Chaney Jones, of Columbus, Ohio, started a consulting business in October and borrowed from her 401(k) to help pay her bills.
"It was extremely easy,' she told CBS News, adding that her financial planner told her "she was seeing more and more people" do it, "because the banks were not giving loans out traditionally to small businesses anymore."
"It's not right for everyone," Jones noted, " but it is your money, you can borrow from it tax-free, you do pay yourself back at interest, but a very low interest, much lower than maybe a traditional bank."
Just like Wall Street sellside research, delusions are rampant:
"What I feel optimistic about," Jones says, "is that I will be able to grow this business to not only pay myself back at the current interest, but continue to contribute more toward the 401K than I would have if I would have stayed where I was."
And for those wondering why doing a 401(k) raid is the worst possible idea:
"It's a big, big problem," she remarked to co-anchor Chris Wragge, "and it's one that's really been under the radar. And the big problem is that, if you lose your job, you have to pay that loan back within 60 days. So suddenly, you have no income, you owe all this money back, and the fact is that most people are unable to pay it back.
"There was a survey recently that found that 70 percent of people who lose their jobs are unable to pay back the loan and go into default. And the number is even higher ... for young people -- it's closer to 80 percent."
It gets worse: "If you go into default," Lipman pointed out, "you've just raided as a piggybank your 401(k), you don't have retirement funds and you owe taxes and penalties."
Step aside HELOCs, here comes the pension money for iPad exchange:
Still says Lipman, "There are certain times when it makes sense. If you're secure in your job, if there is a one-time expense -- let's say you need money for a down payment on a home, that's fine. You know, that makes sense. Or for education, for medical expenses. You know, that can make a lot of sense. Because you are paying yourself back. And if you can stay on track, you're fine with that.
"But the problem is, when you use it as a piggybank. When people are using this to pay for a vacation, to pay for a home that's perhaps larger than they can afford - that's where we really get into trouble."
Luckily, Americans have demonstrated beyond a reasonable doubt that when it comes to abusing rainy day capital to satisfy trivial material needs, there is nothing to worry about. Nothing at all.
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After Katrina employees were allowed to withdraw from their 401(k)s without penalty. Even then people with no need took advantage of the ruling to "get at" their retirement savings for hot tubs, vacations, plastic surgery... all manner of crap. I'm surprised the current numbers are so low!
They're only telling you who took out loans. Others have simply withdrawn funds. The large drawdown in equity mutual fund balances last year and this were a big tell.
I borrowed the max amount I could a couple of years ago from my 401k, bought silver at 12 something and when silver got over 40 I sold it all, paid by the loan and spent the rest on gold. Plus I protected my money because I wasn't invested in mutuals during the last equity puke. In fact - because I was paying myself back 6% interest, my 401k actually made money. Now I'm trying to figure out how to get it all out to protect it from that bastard berskanky. At least without quitting my slave labor. Yes I'm one of the last surviving members of the working class, a wolf in sheeps clothing. Not bragging, but I also sold all my stock in 2000 before the crash, and sold my rental house and mortgage company in 2006. Yes - I owned a mortgage company, not because I'm a banker but because I had deeper pockets than my partner during the first struggling years - so that's how an IT guy owned up owning a freaking mortgage bank. We made money that last year - but I saw the writing on the wall when pimply faced pricks half my age were coming in, with no money down, and 'stating their income' and getting interest only adjustable rate balloons on houses that cost twice as much as mine. SO - now I live on a mountain top in the middle of 40 acres, cleaning my guns. And y'all better do the same. Just saying.
+1 respect
The destruction of the middle class will not be televised – 56 percent of American workers have less than $25,000 saved. Even worse 60 percent of retirees have less than $50,000 saved. 45 million on food stamps and the consequences of peak debt.
http://www.mybudget360.com/destruction-middle-class-will-not-be-televise...
Yeah. I did it too. Didn't need the money but figured on a 25 year time line it would make sense to convert to redeemible pm's while it was still easy. Plus I was pissed off and still have no confidence in our financial or political system. So far it's looking like a good decision.
I have two kids in college. I am taking out loans, paying them back and still contributing 15%. Not a problem here.
All, let's keep things in perspective. When you draw a loan on yor 401, the only risk is you lose your job and have to pay it back or can't pay it back and take it as a distribution, if you keep your job, it is an interest free loan against tax free capital and you pay back the interest as a credit to your own retirement.
Hmmm, interest free loan, sound familiar banksters?
IMO this is one of the few items that isn't bearish for equities/bonds because its not like using margin. You have to sell equities/bonds to give yourself a loan. Its not a loan backed by securities. DUCY this is different?
Retirement funds as "rainy day capital", how upside down is that?
So, when they grab all the 401k money as they've been discussing for a couple years now, what happens with all these loans?
The thugs send SWAT teams to raid your home to make you pay them back.
The government will still demand all the taxes, penalties and interest be paid to them so you'll be triple fucked - welcome to the slave state.
I'm hopin' the ponzi has change.
Best of luck to 30% of Amuricans.
Disclosure: Short neighbors.
When everybody thinks somethings going to happen it usually doesnt, ala qe3. I got out of my silver long from 32ish I believe well see 30 before we see 40. Then its off to lower high lan and then 20 bucks here we come. Then I will buy some silver.
My wife wants titties with her 401k.
Gold Confiscation
Back in the 30s when FDR confiscated gold, the US was on a gold exchange standard. With all the spending he had in mind he had to first come up with the gold in order to print the money to spend. As a sweetener, after he had the gold he increased the price of gold allowing himself to spend even that much more money! The US is not operating under the same constraints today. They can spend as much money as they want... so why confiscate gold?
Another point about the 30s is who had gold? Not most people. They didn't have money let alone gold. I suspect gold confiscation amounted to moving gold from state banks to federal banks.
Today, not many Americans own gold. Comparing the cost of conducting a house to house search against the, ahem, donations just wouldn't be cost effective. But anything's possable :-)
401K Loans
If you lost your job isn't it possable to simply convert everything(including loan portion) to IRA? I suppose you could sue yourself for defaulting but who would bother?
You had to bring your gold in as well. No house to house searches.
Lots of guns around now too.
Let's see them try it.
They would bother to confiscate because they are destroying the value of the dollar and are going to need something to use in international trade.
The government and wall street will take this money using simple tricks, rather than any overt schemes. The 10% penalty is to keep the suckers in. Government both increases taxes and inflation, for a double whammy taking far more than you had planned. Most will not know how to pass it on to their heirs correctly (I.e. In a trust), which will generate a huge double taxation upon your death (balloon disbursement). Wall street as always makes it's high fees, hidden and visible for shit bag investments. All the while providing a nice floor to the market . This money is as good as gone. Drain it and take the hit if you can. It looks stupid now, but 5 years from now you'll look like a genius. Just do the opposite of what robotrader says. He's a spy for the dark squid lords, but also pretty fucking stupid about revealing what you should do (the exact opposite of what he says). He's as good as Goldman sachs that way (another perfect inverse oracle).
You, sir, and I would get along.
if history is a guide, the Fed gov has drained EVERY other pile of money they have had access to except 401k,IRA..pool- trillions just sitting there, wiener was thinking about that money as he shot pics of his groin.
They will tank stocks before they try it.
401K Mutual Funds Exposed - Office Series 1
Can we get some more info on the size of the 401k loans? This may give us some idea of market selloff data and the 401k loan data. I found some data saying the average loan size in 2004 was 6900 and average account size was in high 13k. Saw some numbers that 1/3 of americans have no retirement accounts, playing with the numbers I came up with like 230 million accounts. This is probaly due to people having multiple accounts from multiple jobs. Be nice if we can see some hard fact numbers though without guestimating it. Also there is a scary trend where employers who dont even offer contributions are auto opting in employees. It tells me something is going on. Probably some ways to deal with the full fee disclosers coming out by next year.