NewsWire: 1/13/2020
- Fully 31% of Americans ages 40-74 have withdrawn funds from their retirement accounts during the pandemic, while 27% have borrowed from these accounts. Withdrawals were mostly used to cover basic living expenses, followed by medical bills and home repairs. (Kiplinger and Personal Capital)
- NH: Fully 31% of Americans ages 40-74 have withdrawn from a 401(k) or IRA account during the pandemic, and nearly three in 10 (27%) have taken a loan from a retirement plan. That’s according to a survey from Kiplinger’s Personal Finance magazine and Personal Capital, a digital wealth management firm.
- The survey does not specify if the groups who withdrew money or borrowed it are mutually exclusive. Assuming they’re not, these numbers reflect some degree of overlap. That is, many Americans did both.
- The amounts are substantial. Fully 32% of the participants who withdrew money said that they took $75K or more out from their retirement accounts, while 58% of those who took loans borrowed between $50K and $100K.
- Two-thirds of those who withdrew or borrowed money used it to cover living expenses. The money also went toward medical expenses (41%), home repairs (32%), auto repairs (26%), college tuition (23%), and helping other family members (21%).
- Back in July, I discussed another study that showed Millennials were more likely than Xers or Boomers to have tapped their retirement savings in recent months. About a third of young adults had already taken some money out or were considering it. (See “Covid-19 Sets Back Americans’ Retirement Plans.”) But this new survey confirms that as the pandemic drags on, a roughly equal share of older Americans age 40+ have now joined them.
- To be sure, those under age 59 1/2 had the blow somewhat cushioned by the CARES Act, which allows people to withdraw or take a loan of up to $100K from their retirement accounts without penalty. But that points to the double-edged impact of national policymaking in 2020. Congress was so obsessively focused on expanding aggregate demand today that it was willing to use any means to borrow that demand from tomorrow--even encouraging Americans to liquidate their retirement savings.
- Most working-age Americans went into 2020 woefully unprepared for their own retirement. And the preparedness trend over time has not been positive. I've written often on this issue. (See, for example, "Boomers Are Way Behind on Retirement Savings," "Boomers Go Without an Emergency Fund," "Gig Workers Skip on Saving for Retirement," "State and Local Pensions are a Volcano Ready to Blow," and "Social Security Was in Trouble Before the Pandemic.")
- Paradoxically, the 2020 withdrawals occurred during a year in which the overall personal savings rate soared--to its highest in nearly half a century. But that's an average number. It says nothing about the behavior of the median household in 2020... or of those in the lowest two income quintiles.
- Depleting retirement accounts will almost certainly spell more years on the job for these Americans--and indeed, 35% of the respondents said they plan to work longer due to the pandemic’s impact on their finances. Another 35% said they plan to save more (in the future, presumably). Most of the rest talked about consuming less. Only 34% said their "plan hasn't changed."
