Usage Of 401(k)s As An ATM Soars By 28% In Q4

Tyler Durden's picture

Nearly one-fifth all people with a 401(k) plan have at least one outstanding loan from it with those under 30 years old having taken an average 38.2% of their remaining untouched balance as the new ATM to maintain the credit-fueled standard of living. In a press release from Wells Fargo, data based on 1.9 million 401(k) holders shows that Q4 2012 saw a stunning 28% surge in the number of people taking loans from their retirement plans. While the numbers are scary for younger people, the older generation is taking more loans with 34.2% of those in their 50s and 28.9% of those in their 60s having taken loans from their retirement plans. Yet another example of the 'strength' of the recovery as those with at least one loan outstanding had an average balance in their retirement plan of $7,764! So much for the wealth effect.


Via Wells Fargo,

Through an analysis of participants enrolled in Wells Fargo-administered defined contribution plans, the bank announced today that in the fourth quarter of 2012, there was a 28 percent increase in the number of people taking loans out from their 401(k) and that the average new loan balances increased to $7,126 from those taken out in the fourth quarter of 2011 - a 7% increase from $6,662.


Of the participants who took out loans, the greatest percentage were to people in their 50s (34.2%), followed by those in their 60s (28.9%) and then by those in their 40s (27.3%). The increase among participants in their 50s was nearly double the increase among those under 30. This is based on an analysis of a subset of 1.9 million eligible participants in retirement plans that Wells Fargo administers.


The increased loan activity particularly among older participants is concerning because those are the years when workers can start to make ‘catch-up’ contributions and really need to focus on preparing for retirement,” said Laurie Nordquist, director of Wells Fargo Retirement. “However, we know that this age is also the ‘sandwich’ generation, caught between paying for their kids’ education and supporting elderly parents, which makes saving for retirement even more challenging.”


In addition to the 2012 new loan activity, according to the Wells Fargo data nearly one fifth (19.2%) of people with money in a 401(k) plan had at least one outstanding loan, and of the outstanding loans, the average balance was $7,764. While older participants are taking more loans out than their younger colleagues, the younger a participant is, the greater the loan tends to be as a percentage of their 401(k) account balance. For those under 30, the outstanding loan balance is 38.2% of their remaining untouched balance. For those over 60, it drops to 21.1%. However, only about 9% of all participants under 30 have an outstanding loan, compared to almost 25% of participants in their 40s.


“While the increase in loan activity is concerning, we know that loans are not the biggest driver of leakage from retirement savings,” said Nordquist. “In fact, employees cashing out their 401(k) when they leave an employer are a greater concern. Those dollars are often spent whereas with loans the funds are often repaid and stay in the retirement nest egg.”



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Dr. Engali's picture

I just left a krugman in the toilet bowl....that's my opinion on him.

Stoploss's picture

LOL!!  "retirement"  LOL!!

That shit's over with..

quintago's picture

30% of homes in Silicon Valley are being bought all cash. When you consider the average price at 650K, you'll realize that people are draining their savings to lbut these homes because in many cases they can't compete when they go in with a loan contingency.

No savings, no problem....real estate appreciates faster than some under-performing funds my company tells me to put it in.

That's the logic anyways. But when the shtf, next go round the financing will dry up and there won't be as many cash buyers, and then it's all downhill from there!

syntaxterror's picture

My Silicon Valley HQ-ed company is hiring massively in China and India right now. So all of those 1 million dollar fixer uppers might not be worth 2 million in 3 years if all of the companies in SV continue to hire abroad.

I've lived near SV for a long time and there ain't nothing done here that can't be done elsewhere.

AldousHuxley's picture

you can't just relabel corporate offices in New Jersey suburb as "tech business park" and expect world class innovators and capital to flock there.

Most successful startups are started by ex-employees of successful startups.


Bell Labs (NJ where Shockley worked)

Shockley Semiconductors (Mountain View, CA simply because Shockley grew up there)

Fairchild Semiconductor (by ex Shockley engineers)

Intel and AMD (by ex Fairchild engineers)


son of stanford professor became a dean of stanford engineering and advised students like Bill Hewlett and Dave Packard to form their own corporations and established STanford Research Park which until recently was Facebook's HQ.


krispkritter's picture

Nope, can't do it, can't read him this early in the day. Not without starting to drink heavily...jeebus, it'd give you that 'morning sickness' thing without all the hormones...

ThalesOfMiletus's picture

Yeah, if Au is so worthless, why are the bankers scrambling to physically reclaim it?

As always, watch what they DO, not what they SAY.

Bicycle Repairman's picture

Krugman's implication is that the current system is OK.  It isn't.

Freddie's picture

I wonder how many voted for Hope & Change.  Both elections were rigged plus the elites had two RINOs as back up.

Cognitive Dissonance's picture

Explains to some degree how the consumer has managed to continue spending.

<But all good things must come to an end.>

tango's picture

The difference between today and the Dark Ages (when I grew up) is that we spend until it's gone then demand gov't action.  In the old days, one had no choice but to be prudent, do without and save. It is the instant gratification psychology that is the problem.   Yes, all good things....but when they do, citizens turn to the feds to keep the cash flowubg,  

How do folks keep buying with rising SS taxes, gas, food and health care?   State assistance in housing (a Walgreen worker nearby earns $42k and pays $120 of her $1800 rent due to subsidy), food stamps, health care, energy bills, child care, school lunches, disability, etc.   The true middle class - $50k-$100k - is being flayed.  With taxes, SS, health care, higher costs for necessities, disposable income is drying up. Tyler had an article about 2 families in which the one earning $29k had more disposable income than the one earning $69k.  Talk about a disincentive to even try.    

new game's picture

pedal to the metal, wheels a spinning but alas, no forward movement...

what could be wrong?

TaxSlave's picture

It's called "Get it out and spend it on something tangible while you still can, because it's going to evaporate."


tango's picture

I agree.  We are buying hard assets (land, PM, food, condos, energy stocks, art) as opposed to simply piling up dollars ("safe") in the bank.    The garden is expanding - 20 veggies.  Last year was such a banner year I was giving away quarts of tomato sauce, herbs, pesto and peppers for smoking. 

TeamDepends's picture

Right up there with best picture yet, Tyler(s)!

Mr. Magoo's picture

What is a 401K????????????????????????????

Sudden Debt's picture

anything but 401k dollars...

icanhasbailout's picture

"retirement nest egg" = govt control of your money

krispkritter's picture

By the time you get to it, it will a 'retirement nest shell'.  Empty.

pods's picture

"These are IOU's, they are every bit as good as money.  You will see, it's all there. Every penny accounted for."


tarsubil's picture

This really sunk in when I wanted at the money. If it was really mine, then I'd have some semblance of real access to it. Retirement funds are total bullshit. I move the money left around playing bonds and major indices but the gains I make are just meh. It's all funny money anyways. I'm already prepared for it to be Corzined while the poor schlup in the next cube literally went pale as a ghost when I explained Bass's point on Japan and how we're right back at 2007. The sheep still line up to be fleeced.

new game's picture

retardment is when you think you will have enough but you never will.

do it today, but you must change your lifestyle first.

it is wonderfull, fuck da man!!!

hint-minimalist(google it)-it can be done-i am living proof.

living today not enslaved for shit i don't want or need.

no rush, no time shedules. just my plan to eat something, get some exercise and get to some chores that can wait til i get to them.

life is good...

new game's picture

farming life. i just got sorta lucky with housing boom. liv in cit and have 40 w/cabin up nort.

both are for sale to get south to oky or tex...

small farm is my goal...

Racer's picture

What is the point of having a 'retirement' plan because when you get to retire the banksters and politicians will have already looted it

TuPhat's picture

You got it right, Racer.  In 2009 I took out a loan from the 401K and paid off the house.  If the Investment company had failed I would have 0 in the 401K and still owe money on the house.  Now the house belongs to me as long as I pay the property tax.  If the 401K investment fails I still have something.  I think the loan increase may be due to fear of a collapse as much as an ATM machine effect.

Not My Real Name's picture

1) Only put enough money in your 401k to take advantage of your company match -- that's an instant 100% return.

2) Borrow the max from your 401k and buy phyz silver and gold as a hedge

Bendromeda Strain's picture

Personally disagree - don't think the match is worth the principal investment anymore. If you loan up to the max, you will already be "paying yourself back with interest" (snort). Why take even more good money and potentially Corzine it? You bought some phyz, that is good. Use your excess pay to continue the $$ cost average buying (if you have all your other SHTF ducks in a row).

My $0.2

Bad Attitude's picture

I have to wonder how many of those loans were used to buy PMs.


new game's picture

for sure, some people have enuf sense to hedge the paper with phiz in possesion.

Dr.Vannostrand's picture

This guy right here did just that. Unfortunately, my boating skills suck.

FieldingMellish's picture

Not one for bible quotes but it does seem apt:

Whoever has will be given more, and they will have an abundance. Whoever does not have, even what they have will be taken from them.

Bearwagon's picture

That's Matthew 25.29

The bible has apt quotes for every situation.

GeezerGeek's picture

Perhaps a little more stufying the Bible will help you next time you wish to quote the Bible. That verse is at the end of a parable wherein three servants were given varying amounts of money by their master. Two invested wisely and were rewarded when the master returned sometime later. The third, who was given the least and failed to use it productively, was berated. The specific verse you quote is talking about more being given to those who have invested wisely with the gifts entrusted to them, while the one who failed to invest wisely was no longer trusted. 

This isn't really about money. It could just as easily be seen as talking about responsibility in a modern environment. If your boss gives you a job and you excel, you may very well be promoted to a more responsible position. If you fail at an assigned task, you probably won't be given other opportunities.

It irritates me when inividual verses are taken out of context, not to mention the problems that arise from different words used in the numerous English translations.

Sudden Debt's picture

7.7k.... just enough to cover the first 3 months of retirement...GOT PLANS???!?!?

tango's picture

I usually not a believer in dire prophecies but the plight of those who retire with zero money is a recipe for disaster.    (Thank goodness they are old instead of young.)  SS has become what opponents feared -THE retirement vehicle for folks who didn't save a dime during their lifetime. I don't understand our failure as a society to stress saving at every level - schools, business.  , in politics and particularly at home.  

But I guess the "want it now" mentality has taken hold.  Schools can't teach such things because of fairness - poor folks couldn't save as much.  Politicians know that bering dependent gives the State tremendous power. Central planners know that high savings would be the end of our spending/debt-based economy.  So everyone is happy. 

TaxSlave's picture

I don't understand our failure as a society to stress saving at every level - schools, business.

You don't understand that the system is rigged to punish savers and reward borrowers?  The fact that savings goes negative and borrowing goes beyond any possibility of repayment in a system in which the currency is comprised of debt surprises you?  The great awakening is taking longer than I'd hoped.


GeezerGeek's picture

I concur. Money I saved going back to the 1970s has mostly lost its purchasing power. Too bad I wasn't smart enough/brave enough to start plowing every extra dollar into gold (once owning it was legalized) and silver coins.

Putting money into a 401K nowadays is only good to the extent that the employer matches a significant portion. Putting money into that (or an IRA) has a potentially negative effect once one withdraws it while collecting Social Security. If one is married and has an employed spouse, it is easy to see up to 85% of Social Security income taxed. It is based on the level of other income. Withdrawals from tax-deferred retirement accounts also accrue toward that income level. Thus, even if one is in the 10% tax bracket, each dollar withdrawn from a retirement account can result in approximately $1.90 of additional tax, which is effectively a 19% marginal rate.

Here's a question: If one takes a loan out on a 401K, and then the government confiscates the account, is the loan still payable? 

My suggestion: upon turning 59 1/2 years, take out any money in a 401K, avoiding the 10% penalty.

Consult a proper tax lawyer for more accurate information, but this is how it played out for me this past year.

tango's picture

Thanks for spreading this info  My wife and I paid max into SS for years yet we will receive only slightly more than someone who paid a fourth.  Our Roth IRAs are allegedly immune since we already paid taxes on them.  In our 40's we began diversifying -  property, PM, art, land - to avoid the very thing you mentioned.   I consulted at AIG when it went down and many folks lost almost everything.   One of the few thigs to emerge from the recession was a limit on the amount of company stock an employee could own.   I am not taking SS unti my wife retires to avoid the taxation problem. 

Answer to your question:  Probably not but if we come to that it won't matter anyways.  If the US, once the freest nation on Earth, voides the most basic of property values then we'll have gone so far that loans won't matter.

SeverinSlade's picture

401Ks & IRAs...Holding your own money hostage and taxing/penalizing you for ever trying to access it.

stoverny's picture

Um this is a rather silly generalization.  401Ks are tax advantaged because the money is designed to be used for retirement.  The penalty for early withdrawal is the tradeoff for the tax benefit.  If you don't want your money "held hostage", don't open a 401K and pay full taxes on it immediately - pretty simple.

IRAs are nothing more than govt attempt to use the tax code to encourage people to save for retirement.  No one is holdnig anything hostage.  Rather dramatic hyperbole, even for ZH.


SeverinSlade's picture

Well aware of what it was "designed" to do.  No one said people are forced into this situation.  But once someone makes the agreement, their money is being held hostage...Hence penalties for early withdrawal.  Unless of course your withdrawal meets one of the gererous exceptions provided by our all-loving benevolent government.

syntaxterror's picture

How else can you borrow money from yourself and pay a banker and taxer at the same time? Fucking brilliant if you ask me.

TaxSlave's picture

Government programs NEVER accomplish what they promise.  Ever. 

The tax 'advantage' puts your loot up as low-hanging fruit.  There are two rules to government: "I make the rules", and "I can change the rules anytime I want".  See Cyprus.  Fer fucksakes.


syntaxterror's picture

Tax benefit!!! You don't know what tax rates will be in 30 years! And this debt-fueled corrupt government ain't lowering taxes any time soon with it's communist-esque 5 year plans. Forward muppets!

Inthemix96's picture

If you dont believe we are fucked by now,

What will make you believe in the future?

These fucking scoundrels in the financial class, with bought off politicians have trully fucked us all.

Cunts, you will get yours though, of that I am fucking certain.

Bearwagon's picture

And they shall get theirs! Keep enraged!

sansnobel's picture

I took a $50,000 loan from mine last month.  Why you ask?  Because it was the only way to get my money out of the system before the government confiscation begins.  Funny thing, I asked to close it out entirely and pay the penalty to the tax man now just so I could have MY money now.  Take a guess as to what my plan manager says:  "You can't close this out until you either A: Retire  or  B: Quit your job "  ......  So there you have it.  Pretty pernicious little system wouldn't you say?  Oh no don't be silly folks that money doesn't belong to you.....silly little slaves get back to work slave!!!!!!!!

Burr&#039;s 2nd Shot's picture

A 401k loan is the only way in my existing plan to have an allocation to physical metal and land. Pricey, perhaps, but better than a paper promise.