Americans are raiding their retirement accounts to make ends meet and that’s going to cost them big time down the road. Partial withdrawals soared last year by 30%.
Former White House Economic Advisor Steve Moore joined The National Desk’s Jan Jeffcoat to discuss the issue.
“There are two problems with people’s 401(K),” he said. “One of them is something we’ve talked about, which is that the value of people’s 401(K) plans has fallen over the last couple of years because we haven’t had a great stock market. Inflation has really eroded a lot of the gains in people’s plan so that’s a problem.”
The average 401(K) balance fell 4% in the third quarter. This comes as withdrawals and loans increased, according to a report by Fidelity. They reported that the decline is partially due to volatile market conditions.
“But this new problem that has arisen is that because of the consumer spending spree, more and more Americans are having to go into debt to pay for all the new spending. They’re doing that in two ways,” Moore said. “They’re financing it one way by just using the credit card and amassing more and more credit card debt.
We’re over a trillion dollars in credit card debt right now. The second way is that people are now actually cashing in early on their 401(K) plans, taking money out of that retirement savings. That’s a bad idea. Because you’re gonna pay a stiff tax penalty if you take that money out early.”