Americans Drain Retirement Funds to Pay Debt

As the plan administrator for my company’s 401K I have a window seat into all the activity for our 401K plan. What I’ve seen over the past year is a flurry of individuals taking out loans. Some individuals literally pay off a loan one week and begin another loan the following week, never giving their retirement accounts a chance to recover. It turns out that this is a wider trend happening all over the country. Individuals are raiding their retirement plans to pay for their current debts.

NBC news did a story on this trend in the video below.

 

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10 thoughts on “Americans Drain Retirement Funds to Pay Debt

  • I guess the only place I can see it being worth doing is in a down economy where your making less than the rate of inflation in retirement and you have high interest debt you want to pay off. Effectively you’re still paying yourself in this case. However, you will pay any deferred taxes and penalties so the offset really has to be pretty high/extraordinary. I’m thinking stuff like payday loans which an individual in serious hardship may have taken out. And this should be an extraordinary event, not one to be repeated a few months later.

  • I suppose if there’s a silver lining, it’s that they’re using the money to largely pay off debt rather than go out and buy things, which was probably more the case a few years back. At least if they pay off debt now (and don’t take on any new debt) they will have less obligations once they retire. That will at least offset some of the lost money resulting from the drawdowns.

    Not much of a silver lining, but trying to find one 🙂

  • This is an unwelcome trend. My parents squandered their retirement savings in order to take care of a lack of income. They told me to never do what they did and I plan on keeping that promise. I don’t think about my retirement accounts and don’t want them on the block if I am in trouble.

  • It saddens me everytime I read about people with debt of any description. I wonder if somebody had have explained to them the concept of Compound Interest and then moved on to explain that debt has exactly the opposite effect whether they would be in the same situation.

  • this is a sad truth! people getting in over their heads and then having to sacrifice their future savings in order to climb back out of debt….

  • If you are long term unemployed, I would understand why. If you are employed, I would never touch it! Good grief, get a payday loan instead. (I would not do that either).

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