401k’s Bleeding Cash

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HelloWallet’s survey landed with a thud in the media this week: one in four U.S. households with a 401k or IRA raided it to cover necessities.

The vast majority of raids are cash withdrawals, not loans – $60 billion in cash in 2010. These grim statistics throw weight behind those who argue we are watching a retirement crisis unfold in slow motion. The pressures on saving are aggravated by stubbornly high long-term unemployment: layoffs explain why 8 percent pulled out cash. But the Great Recession isn’t the only culprit.

Wages, adjusted for inflation, have declined over the past decade, health costs have soared, and consumers remain heavily dependent on their credit cards. In this environment, no wonder saving is often viewed as a luxury.

The 2010 data reveal behavior at a time individuals were still smarting from Wall Street’s financial crisis. But back in 2004, the average 401k balance for all boomers age 55 to 64 was only $45,000 – it was only slightly lower by 2010.

To put that $60 billion in perspective, it is about half the amount U.S. employers put into 401(k) plans on their employees’ behalf that year.

To read HelloWallet’s full report, click here. To read about loans from 401ks and IRAs, which were not discussed in this article, click here.