The Post reports that more workers, financially stressed by cash flows that fall short of their family budgets, are turning to early withdrawals from their 401(k)’s:
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.
With federal policymakers eyeing cuts to Social Security benefits and Medicare to rein in soaring federal deficits, and traditional pensions in a long decline, retirement savings experts say the drain from the accounts has dire implications for future retirees.
OK, federal deficits are not “soaring”—they’re eminently manageable—and while it’s legitimate for the large social insurance to be in the mix in budget negotiations, the point I’ve been stressing and that this article underscores is that any version of entitlement “reform” must protect the economic security of vulnerable retirees.
What we see here is much the same thing we see in the figure below showing the rising share of working households unprepared for retirement defined by the Center for Retirement Research as having too little income in retirement to allow them to retain their pre-retirement living standards. As they raid their retirement accounts—basically borrowing from the future to meet present needs (and doing so with a hefty tax penalty)—those bars will get higher over time.
The problem is that two of the three legs of the retirement security stool are wobbly. Those legs are Social Security, pensions, and savings, and only the former is solid. Any reform efforts should keep it that way. In the meantime, if people could earn more, they could save more, so there’s a jobs and wage agenda here as well.
Source: Center for Retirement Research