Large numbers of American households have been forced to loot their retirement accounts to make ends meet over the past year, even as the federal government invested an additional trillions of taxpayer dollars into the economy to keep it afloat. And that sad news will add to the looming retirement crisis that tens of millions already face.
Households are looting 401 (k) s to survive the crisis
About 31% of households said they withdrew money from their 401 (k) or other retirement plans and 27% borrowed from the plans, according to a new survey by financial magazine Kiplinger’s. And the sums weren’t small either. More than 80% of those who borrowed money and those who made withdrawals took care of more than $ 25,000, and about a third in each case took more than $ 75,000. Those who took money out of their accounts were helped by the emergency provisions of the CARES Act passed by Congress last spring, which made it easier and less expensive to borrow or even withdraw money from a tax-protected retirement account to deal with the crisis. To begin with, the Kiplinger survey targeted the richer end of the market. The median household income of those surveyed was $ 119,000, the magazine said. That’s well above the median overall US household income, which according to the US Census is just under $ 70,000 a year. So we are talking about the upper middle class. The magazine surveyed people ages 40 to 74 who were still working and had at least $ 50,000 in retirement savings. The average age was 51 years. The magazine did not say how much overlap there was between those who borrowed and those who made permanent withdrawals. Paying living expenses was the number one use of money, people said. Last month, Tara Siegel Bernard of the New York Times reported that more than 2 million Americans made withdrawals from their workplace retirement plans to deal with the personal financial effects of the closings. ***** And retirement plan giant Fidelity Investments tells MarketWatch that 1.6 million of its 401 (k) and 403 (b) clients made withdrawals last year under the CARES Act. That’s just over 6% of your customers. The average withdrawal was just over $ 20,000. ***** With the stock market flying high and the economy seemingly rebounding, many on Wall Street feel a little more arrogant about the economic hangover from Covid 19. But the devastation caused many retirement plans and household budgets neither they have even begun to be counted. So far, the problems have been hidden, almost literally. Between January 1 and September 30 of last year, the federal government borrowed $ 3.4 trillion and injected it into the economy to mask the effects of the crisis, reports the Federal Reserve. (Fun fact! That’s more than America’s total deficit from 1789 to 1991.) Kiplinger’s respondents said they had raided their retirement accounts even though they had also been helped by federal stimulus checks and tax deferrals. on payroll. And most of those surveyed had kept their jobs during the crisis. Oh, and the median retirement savings among these upper-middle-class savers was $ 189,000, enough to generate a lifetime annuity income for a 65-year-old couple of $ 760 a month. No cost of living adjustments.