Author Topic: More than 25 percent of Americans raiding 401(k)s to pay bills  (Read 456 times)

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Offline mystery-ak

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More than 25 percent of Americans raiding 401(k)s to pay bills
Shan Li Los Angeles Times

More than 25 percent of Americans are dipping into 401(k) retirement accounts to pay bills, according to a recent report.

U.S. workers are tapping into nearly a quarter of the $293 billion placed into their retirement savings each year to pay for mortgages, credit cards and other debts, according to a report from financial advisory firm HelloWallet. Those in their 40s are the most frequent raiders, with about one-third using their 401(k)s to pay current bills.

Other studies bear out those results. Vanguard, an investment-management group, said American workers withdrawing money from 401(k)s or taking out loans against their accounts jumped 12 percent since 2008.

Draining funds that ensure security when workers retire has raised new worries about the shaky foundation for older Americans.

Many workers use loans that incur large penalties to dip into retirement accounts. In addition to paying income taxes, many are hit with a 10 percent tax penalty.

Matt Fellowes, chief executive of HelloWallet, said there are few winners in that situation.

"What you have is 401(k) participants voting with their wallets, saying they would much rather use their money for other purposes," Fellowes told the Washington Post. "I don't think this can be ignored. Employers are dramatically overpaying for retirement, but it is not benefiting the employee."

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Offline AbaraXas

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Re: More than 25 percent of Americans raiding 401(k)s to pay bills
« Reply #1 on: March 17, 2013, 02:06:26 PM »
There is actually financial sense to some of it if you are careful and do it right.

If you have large credit card bills that are charging you 20% interest but your 401K is only returning 2% interest, it could be financially viable to take a loan out of your 401K to eliminate the credit card bills. When you pay your 401K back, you are paying yourself back the interest.

Yes, you do lose interest compounding but that is more than made up for with the elimination of the compounding debt interest.  You then can take that difference and invest it right back into your retirement.
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