R.I.P. Retirement: 28% Of Americans Are Raiding Their 401k Plans

Tyler Durden's picture

Via Michael Krieger of Liberty Blitzkrieg blog,

This trend has been in place since the financial crisis, but the fact that it is accelerating is extremely disconcerting.  First off, this is not the kind of behavior that should be witnessed in an “economic recovery.”  Second, we need to remember the huge percentage of Americans on food stamps and/or disability.  As we have discussed previously, many of them also have jobs.  So essentially, a wage and a check from the government is still not enough to survive.  They still need to tap into a loan from their 401k plans.

From the Washington Post:

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.


A report due out this week from the financial advisory firm HelloWallet found that more than one in four workers dip into retirement funds to pay their mortgages, credit card debt or other bills. Those in their 40s have been the most likely culprits — one-third are turning to such accounts for relief.


Fresh data from Vanguard, one of the nation’s largest 401(k) managers, show a 12 percent increase in the number of workers who took loans against their retirement accounts or withdrew money outright since 2008.


The most common way Americans tap their retirement funds is through loans, which must be repaid with interest. Those who withdraw money face hefty penalties. In most cases, they not only incur a 10 percent federal tax penalty but also pay income taxes. The costs are financially harmful to families even as ­money-management firms reap massive fees for handling retirement accounts that ultimately are not used for retirement.

Hint, banksters win again.

In 1980, four out of five private-sector workers were covered by traditional pensions that paid them a fixed benefit based on their salary and length of service once they retired. Now, just one in five workers has a pension, leaving 401(k)s and similar retirement savings accounts as the primary vehicles for retirees to supplement their Social Security benefits.


But millions of Americans, caught between flat wages and high expenses for everything from sending children to college to making home repairs, feel as though they have little choice. The withdrawals have grown substantially in the wake of the financial crisis.


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.


Fellowes said workers would be better served by establishing emergency savings accounts that steered clear of the potential tax penalties, investment fees, and other risks and costs associated with having money in retirement accounts. Only after establishing an emergency savings fund, he said, should workers plow their money into retirement savings.

If people did the above, then the financial parasites couldn’t take their fees.  Let’s not forget that many employers automatically put people into these 401k plans without even asking them.  From the same article:

In 2006, employers were given broader latitude to enroll employees in 401(k)-type plans unless workers asked not to participate.

This happened to me at Bernstein and I had to call up to tell them I wanted out.

What a joke this nation has become…

Full article here.

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hooligan2009's picture

hahahaha..i gotta stop watching CNBC..they just said that they were the only people talking about this!!!

Ruffcut's picture

Social Insecurity will save us all!!!

Can't wait for housing to come back so we can have our ATM's back. Well, it was fun while it lasted.

Next we shall learn to thrive off eating bugs.

redpill's picture

Cue the financial "advisors" that urgently tell their "clients" that they should "pay themselves first" instead of their grocery bills by pissing away money in a 401k account that the "advisor" makes shit tons of money on through fees and that the federal government could steal at any time.

The only reason to have one of these is if the company does matching funds.


NoDebt's picture

Thread got too long to read everything, so I'm jumping in up here with what may be an important piece of information.  I'm looking at my book right now.  I don't have anything like 28% of participants with outstanding loans.  It's not even anywhere near double digits.

I suspect you add up everyone who touched their plans over the last 5 years (in the middle of the "Great Recession") with a loan or distribution of some kind maybe you could hit that number.

I suspect there may be some double-counting going on here.  I Dunno.  The idea that everyone is suddenly taking out a loan during employment or saying "show me the money" as soon as they leave employment.... sorry, I'm not seeing that kinda tidal wave happening.

Umh's picture

You have more information than I have. Could they be looking at people who pull out from their 401K when they change jobs?

AlaricBalth's picture

According to the in Investment Company Institute, the percentage of participants in a defined contribution benefit plan with loans outstanding was 18.5% in 2011. This number does not include self directed plans such as IRA's.

401(k) Loan Defaults: How Big Is the Leakage and What Can Policymakers Do to Preserve Americans Nest Eggs

"Individuals with 401(k) plans borrow from them as a last resort because the loans are meant for retirement, not ongoing living expenses. Nonetheless, when times are tough—as they have been since the beginning of the Great Recession—many more people with 401(k) plans have no other choice but to borrow from their accounts to maintain even a reduced standard of living. This is very much in evidence in Table 1, which demonstrates, that the percentage of active participants with a 401(k) loan increased from 15.0 percent in 2006 to 18.5 percent in 2011."


Stuck on Zero's picture

Does it include people who pull from their IRAs for college tuition or to purchase a home?


Harbanger's picture

The article says these people are still employed.  I know a few people myself who took at least part of their IRA money out after 2007 and bought pm's.  So some people may just be trying to safeguard some their retirement money before it's all gone.

nmewn's picture

I can tell you from experience, I cashed out my IRA in December to keep it away from "them".

I sent 25% of it off yesterday, with the 10% penalty to come in April. The remainder will go into tangible assets. If I lose my job, I'll do the same with the 401k which I quit contributing to January 2.

So I have (will) rendered unto Caesar what is Caesars and my upside is Caesar will have zero idea of my net worth going forward ;-)

Manthong's picture

Middle class short squeeze.

No return on savings ever again means no intrinsic holding value to FRNs.

Dump it to any other asset that will hold value or generate revenue.. and that does not include any fiat instrument that adjusts to BS nominal rates.

Shizzmoney's picture

A couple of older (white) guys at my job took out their money from my company's 401K after Obama got re-elected.

They're suckers because their money shoud lof never been in there in the first place.

Talleyrand's picture

More anecdotal evidence - I heard of a fellow who "borrowed" as much as the administrator of his shitty, no-PM-vehicle 401k would allow back in 2009 and bought AGEs. Though he's still paying it back with after-tax wages, he seems quite content with his decision.

Bendromeda Strain's picture

I have tapped and paid back mine for the maximum amount 3 times now. Bought metal (of various types) all three times, plus did a cash out refi because we still had good equity (still do). Sure, my mortgage hasn't moved much in the last couple years, but the interest I am paying on the retirement loan goes to me, and if SHTF, I will have something to show for that money before it vaporizes.

hooligan2009's picture

and a bit further down:

Using the Investment Company Institute data above (showing 18.5 percent of all participants with a loan), and Aon Hewitt data on average outstanding loan balance ($7,860),13 along with an estimate of the number of active participants in a defined contribution plan in the United States (72.0 million at the end of 2009),14 we estimate that the outstanding defined-contribution loan balance in 2009 for the U.S. as a whole was $104.7 billion (equal to 0.185 x 72.0 million x $7,860).15

15. This estimate is close to the $108 billion of loans outstanding implied by the Plan Sponsor Council of America. See Plan Sponsor Council of America, PSCA’s 54th Annual Survey of Profit Sharing and 401(k) Plans, 2011 (estimating that loans were 2.4 percent of plan assets of the survey respondents in 2010).

pension assets in the tabel above that bit are an impressive 17.9 trillion...which, at a 5% annuity rate...gives c. 900 billion in annual pension income..with 150 million in the wrokforce gives a pensoin of 6,000 a year or 120 a week...wtf!?!


 i might post this bit at the top as well

RafterManFMJ's picture

I cashed out my retirement accounts and ate at Happy Meals at McDonalds for 3 weeks... the hunger .... grows. Now what?

economics9698's picture


BK has a fabulous value menu.  Steel Reserve is readably available in convenience stores everywhere and the ho at the park charge $5 on weekdays.


hedgeless_horseman's picture



I am no CPA, but why wouldn't I take a max loan from my 401k, buy gold, then pay back the loan?  Is that not a pre-tax gold purchase?

redpill's picture

No because you'd be paying back the loan in taxed dollars.

hedgeless_horseman's picture



That would make sense, but are you absolutely certain about that?

redpill's picture

If you have a source of tax-free dollars to pay back your tax-free loan, why wouldn't you just buy the gold with that to begin with?

If you want to play hard ball the trick is to take the 401k loan, buy the gold, lose it in the ocean, and tell them to go fuck themselves.


hedgeless_horseman's picture



lol.  Great work, redpill, on the Bernanke twitter feed yesterday.  I laughed, I cried, I pissed myself.

redpill's picture

Makes you wonder if the old Chairsatan actually went back and read any of the raw feed.  My hopes aren't high, but the mere suggestion is lovely.

Supernova Born's picture

Have your cake and actually get to eat part of it?

GTFO of here!

NotApplicable's picture

Of course not. One must never awaken cognitive dissonance and expect to remain a functional "expert."

At any given time, he's about a half a lip-quiver away from losing his job. There's no way he'd further endanger his role.

That's okay though, as Twitter has created a wonderful platform for real-time snark. How many people were watching that feed, I wonder?

Social media is becoming quite an interesting means of communication. Sure the early adopters are always porn, attention whores and many other flavors of narcissism, but as always, there's more to come.

WezTheJuic's picture

Well, it did do one thing for  sure. 


It kept people busy.



Big Slick's picture

Did you all know that CONTRIBUTIONS (NOT earnings or rolled funds) to Roth IRAs can be withdrawn penalty and tax free?  Basically, Roth IRAs can be treated like saving accounts.  Look it up

Cathartes Aura's picture

keeps "people busy" and feeling important.

and monitored.

FreeNewEnergy's picture

Wait, I had a 401k once, cashed it out, blew most of it on gold and silver, the rest I spent wisely on liquor and women.

When my boat sank with all the gold and silver on board, I told .gov I had a capital loss and was able to carry it over for three years, paid no taxes.

My accountant friend says what I did was somehow illegal, but .gov didn't seem to notice or care.

I think that if you're crafty enough, the IRS gives you credit and leaves you alone.

I told people in 2006 and 2007 and again in 2008 to cash out their 401k plans, take the hit and put the money somewhere .gov could not find it.

No takers. America: Land of the sleeple (People who look like they're awake, but are actually sleeping (thanks, Ambien). I just coined the term yesterday, calling dibs) and home of the knave (or naive).

s2man's picture

I took a loan against my 401(k) for a house/land.  Then I withdrew the max I can and put it in PMs, food, and other prep's.  Sounds a lot safer than leaving it at Fidelity.

tlnzz's picture

I pulled a chunk of cash out of my 401 to buy Gen III night vision. Looking ahead.

Iam_Silverman's picture

"Looking ahead."


Disenchanted's picture

Lucky bastids! I'd have to quit my job to access my 401k funds...unless I have a serious health emergency or am in danger of defaulting on my home mortgage, then I can get a portion of it out.


btw my corporate masters 'generously' match 6% for me.  s/I'm feeling faint now just looking at that large number./s

Any suggestions on gaming SSDI so I can quit and get my stash? (that's more sarc btw)

Au Shucks's picture

You could do what I did... stop paying your mortgage for a couple months.. when they call you, tell them to send you a letter telling you that if you do not pay, you risk the commencement of foreclosure proceedings.  Send that letter to your retirement company, BAM... get your check.  If you choose, pay the arrears on your mortgage, no major credit ding, no risk, got your dough.  this is exactly what i did, except once I got my check, I decided to tell my mortgage company (Citi) to suck eggs and prove they own my note before I pay another cent.  3 years later, still living in my rather nice house without a mortgage payment or property tax bill.  If they can prove they possess the note, and can produce it for court, that is when i will decided to give 'em the keys or the arrears. 

Resist the debt masters and their institutions at EVERY TURN.

hooligan2009's picture

sounds like aplan...wont Citi ask for back payments plus interest when/if they find the note?

secret_sam's picture

Depending on the state you're living in, that's when you'll send 'em yer keys.

formadesika3's picture

Just out of curiosity, anyone have any thoughts on what will be raided first, 401Ks or IRAs? Or any reason they wouldn't be hit at the same time?


secret_sam's picture

That's not going to happen any time soon.  The gummit's primary goal right now is to prevent the financial industry from collapsing.

bigrooster's picture

Not a bad plan except for the fact that the IRS will ding you the 10% penality and tax the loan as income.  It is true that you repay the loan with after tax dollars.  But the KEY is that you are paying yourself back the interest and not a bank.

Talleyrand's picture

...and, should you take out a five year loan, you'll being repaying with FRNs that could have less purchasing power than they do today - esp. if purchasing PMs. Then again, things could change in five years...or sooner.

Meat Hammer's picture

My company matches half of what I put in, so I get an automatic 50% return.  However, as I see the inevitable shit slowly approaching the fan, I will try to time it right to quit my job so I can steal my own 401K money from the gubmint, use it to buy PMs through a self-directed IRA, then have a tragic boating accident where I will, undoubtedly, barely survive after having lost all of my gold and silver. 



SilverIsKing's picture

Time it right?  Not gonna happen.  Govt will lock you out of those funds and you won't be able to get them after you quit.  GSAs will be thrust upon us as an emergency measure on a Monday morning when you don't expect it.  Good luck though.

chubbar's picture

The answer isn't because you are paying back with already taxed dollars (although you are), it's because you are repaying a loan with interest. The 401K is making money (the interest) by making the loan and is therefore making an "investment" and money on that investment, which is the whole purpose of the 401k. The aftertax interest you pay back now becomes pretax investment earnings and you will eventually pay taxes when you withdraw that. So, you are paying back the pretax dollars with aftertax dollars and interest. That makes it OK with uncle sam because he gets to fuck you once again on money you already earned (just the interest technically). Yes, buy the shit out of the PMs anyway you can!

Citxmech's picture

What you should do is cash-out to buy PMs period.  Fuck the fees/penalties.

Supernova Born's picture

Those early withdrawal taxes are going to look (in retrospect) like the world's greatest bargain given what's coming.

Obama is untouchable, he has the MSM and he is backed by an exponentially growing army of third world, uneducated defectoids.

An "army" marches on its stomach and the FSA is going to gnaw the middle class and upper middle class down to their marrow.

Jason T's picture

I stopped watching in 2007 .. haven't even got a TV now for the last 3+ years.

Zap Powerz's picture

Jason, good move.  All TV is indoctrination.

There are strange things going on now.  The emptying of 401(k)s is just the latest sign the US is in decline.  As strange as it is, things are only going to get worse.

I see no way the USA, as it is currently known and constituted, will last >10 years considering the accelerated rate of deterioration.


JPM Hater001's picture

"Those in their 40s have been the most likely culprits — one-third are turning to such accounts for relief."

I didn't so much "dip" into my account as "cash" the freaker out and go silver, which is to say, it isnt paying a single freaking bill, just experiencing gravity day in and day out.