What are 401(k)'s telling us?
Surveys show an increase in both hardship withdrawals and loans against 401(k) plans. Are people running out of money to live on?
Some surveys claim people want to pay down consumer and credit card debt. If that's so, it could be a good thing. But after paying down the debt, will people stop taking on new debt? Or are people simply paying off old debt so that they can continue to borrow more in the future?
For years, government and the media have pushed the idea that everyone - and I mean everyone - should have and invest in a 401(k) to the maximum allowable limit. Many, if not most, people have put all their retirement savings into these plans. If they are now withdrawing money before retirement, what will be left for them in retirement?
Some claim that people's wages have not kept up with a rising cost of living. Others dispute that claim. But if it is true that people are tapping into their retirement savings now, it can only mean one of three things: they are spendthrifts who can't live on their current incomes; they are not spendthrifts, but cost of living has outstripped their ability to earn money; they have to pay down debt that has grown too large - either because they are spendthrifts or because they have had to borrow to keep up with the cost of living.
I suspect the truth lies somewhere in between. Too many people live beyond their means. They have subsidized their lifestyle by borrowing against their homes. Now their homes are declining in value and so they can't borrow against them. Now they're stuck. They either have to cut back on their lifestyle, or they have to get money from somewhere else to support their accustomed way of living.
Some surveys claim people want to pay down consumer and credit card debt. If that's so, it could be a good thing. But after paying down the debt, will people stop taking on new debt? Or are people simply paying off old debt so that they can continue to borrow more in the future?
For years, government and the media have pushed the idea that everyone - and I mean everyone - should have and invest in a 401(k) to the maximum allowable limit. Many, if not most, people have put all their retirement savings into these plans. If they are now withdrawing money before retirement, what will be left for them in retirement?
Some claim that people's wages have not kept up with a rising cost of living. Others dispute that claim. But if it is true that people are tapping into their retirement savings now, it can only mean one of three things: they are spendthrifts who can't live on their current incomes; they are not spendthrifts, but cost of living has outstripped their ability to earn money; they have to pay down debt that has grown too large - either because they are spendthrifts or because they have had to borrow to keep up with the cost of living.
I suspect the truth lies somewhere in between. Too many people live beyond their means. They have subsidized their lifestyle by borrowing against their homes. Now their homes are declining in value and so they can't borrow against them. Now they're stuck. They either have to cut back on their lifestyle, or they have to get money from somewhere else to support their accustomed way of living.
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