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Thursday, June 9, 2011

Record Number Using Retirement Funds As Source Of Immediate Cash - 30% Of People With 401(k) Taken Out A Loan Against It -

Record Number Using Retirement Funds As Source Of Immediate Cash - 30% Of People With 401(k) Taken Out A Loan Against It -


If our readers have been wondering where, in addition to the decision to never make mortgage payments again, do Americans get the money to buy a 2nd iPad (for that real 3D-effect of iTunes porn), preorder the iPhone 12.499, and bid up Amazon stock at 999x P/E, here is your answer: according to a new study by Fidelity, a record number of workers tapped their retirement funds and made hardship withdrawals from their accounts in the second quarter. In other words, just like the country they live in, Americans no longer give a rat's ass about the retirement years in a narrow sense, and the future in a broader one, and since real unemployment is about 20%, wage deflation is everywhere, even as Solitaire time is down to 0 (except for SEC employees), and nobody has any money left, the only logical recourse is to borrow from the self-funded pension fund. According to the Fidelity study, "Among the 11 million workers whose 401(k) plans are run by Fidelity, 11 percent took out a loan from their plan during the 12 months ended June 30, the company said, up from 9 percent at the same point a year earlierBy the end of the second quarter, plan participants with loans outstanding against their 401(k) accounts had reached 22 percent versus 20 percent a year earlier." And if anyone is so deluded to think that these not so gracious retirees have any intention of ever paying these "loans" back, we have some AJ-rated CMBS to sell you at par prime. Which also means that suddenly Fidelity may find itself with worthless liens instead of cash, and should the market plunge again and the fund giant find itself in a need to satisfy billions in collateral calls, it is game over. But why worry: after all, it is not like investors have been steadily pulling cash out of stocks over the past 15 weeks.
More from Reuters:
During the quarter, 2.2 pct of Fidelity's active 401(k) participants took a hardship withdrawal, up from 2 percent a year earlier, and another peak, Fidelity said.

Often those withdrawals were used to prevent foreclosure on a home or pay college tuition.

"People have been looking to their 401(k) plans as a source of relief to help them meet financial hardships," said Beth McHugh, a Fidelity vice president who oversees the area. "For many individuals that is their primary savings vehicle."

Loans and withdrawals were highest among workers between 35 to 55 years old, Fidelity found, peak earnings years.

Fidelity, the Boston mutual fund giant, is also the country's largest administrator of retirement savings plans like 401(k)s, making its quarterly survey a closely watched barometer of saver behavior.

As more companies end traditional "defined benefit" plans like pensions, workers are relying more on "defined contribution" plans like 401(k)s to carry them through retirement.

To encourage savings, tax codes and other rules discourage early withdrawals. Distributions from 401(k) plans are taxed as ordinary income, and withdrawals by individuals younger than aged 59 1/2 may be subject to an early withdrawal penalty.

Balances in 401(k) plans, which tend to be held in mutual funds dominated by U.S. equities, slipped in the second quarter as major stock indexes tumbled more than 10 percent.

The average 401(k) balance as of June 30 was $61,800, up 15 percent from a year ago but down 7.6 percent from $66,900 as of March 31.

Fidelity found signs of continued thrift in the workforce. The average percentage of salary saved in a 401(k) held steady at 8 percent, similar to the rate in the first quarter, while 32 percent saved 10 percent or more of their pay.
And since the administration will most certainly do the expected and react wrongly to this development once again, we expect to see even greater penalties to pension fund redemptions, which will do nothing to decelerate this troubling trend (and quite likely do the opposite), but merely take even more money out of circulation, as the government's bloated machine keeps ever more capital to fund such massively value added activities as the SEC daily porn surfing habits.