dChan - Q Origins Project Archive

Inflation-Battered Americans Raiding 401k's To Pay Mortgages And Rent

(Inflation and mortgages aside if you feel that the markets are going to drop 10% or more you would be much better taking your money out of the system pay your early withdrawal penalty-and there are legal ways around that-consult your tax professional and sitting this out…..however I don’t believe they will crash markets because unlike 2007/8 everyone has been calling for it for over a year and what has happened?…pretty much up,up and away and really they would have to trot out Janet Yellen to manage it and she can’t even handle a bowl of tapioca pudding at this point so until they change her out and bring in Larry Summers/Fink or Tim Geithner (those muh picks) it won’t crash. However that doesn’t mean you should sit and watch your 401k erode in value)

In the latest sign of an economy edging deeper into troubled waters, more Americans are raiding their 401(k) retirement accounts to cover basic living costs, according to data released by Fidelity Investments on Monday. “Americans outside the wealthiest quintile have run out of extra savings generated early in the pandemic and now have less cash on hand than they did when the pandemic began," notes Bloomberg's Alexandre Tanzi, citing Fed data. According to Fidelity, 2.3% took a hardship withdrawal in the third quarter, up significantly from the 1.8% rate observed in the same quarter of 2022.. The top two reasons given for the third-quarter hardship withdrawals: avoiding foreclosure/eviction, and medical expenses. Withdrawals aren't the only way to crack the 401(k) piggy bank. Fidelity says 2.8% took loans from their retirement balances, up from 2.4% last year.Even more concerning: Fully 17.6% of workers now have an outstanding loan against their 401(k).

(Fidelity chart is cap 2 showing 10y of increased values so the clients/account holders look at this and think “I’m rich” but fail to adjust for inflation and the destruction of the dollars purchasing power)

Withdrawals and loans aren't just a sign of an increasingly troubled economy – since they sap retirement savings, they also portend a weaker financial future for the growing number of individuals using those features.

Look for the hardship withdrawal rate to keep increasing, and not just for economic reasons: Starting in 2024, a new rule will allow withdrawals of up to $1,000 for emergencies without being subject to the 10% under-59 1/2 penalty. Unlike hardship withdrawals today, participants will be allowed to repay these sub-$1,000 withdrawals back into their accounts over three years. With empathetic intentions, Congress may instead be enabling financially destructive behavior. IRS rules allow hardship withdrawals for "an immediate and heavy financial need." Unless it's from a Roth account, these withdrawals are subject to taxation,(however there are legal ways around it so don’t pre-pay it as they give you the option)including a potential 10% penalty for those who haven't reached age 59 1/2. 401(k) loans sound more benign and they can be but they have their own disadvantages. For example, the interest you pay "to yourself" comes from money that's already been taxed, and you'll pay tax on it again when you withdraw it in retirement. Also, if you don't pay them back on time or before changing jobs loans will be re-characterized as distributions subject to income taxes and the 10% penalty. Avoiding the need to tap retirement savings starts with building an emergency fund: Financial planners typically recommend having the equivalent of three to six months of living expenses in a liquid account such as a money market mutual fund. However, a January Bankrate survey found that 57% of American adults aren't even able to cover a $1,000 emergency expense. That percentage has almost certainly risen in the intervening 10 months.

https://www.zerohedge.com/economics/inflation-battered-americans-raiding-401ks-pay-mortgages-and-rent

https://newsroom.fidelity.com/pressreleases/fidelityq3-2023-retirement-analysisworkers-commit-to-the-long-term-while-navigating-uncertain-ma/s/d5824701-cdfa-4cd2-8796-602b7b1dc541

Remember the FED uses Owners Equivalent Rent (which is a 5 month dataset lag) and all it comprises is someone calling a home owner and asking “what do you think you can rent your unfurnished home for?” So completely unempirical and always higher than reality…that 5 month lag is what kept inflation lower over this year in the home/shelter category because as rents sky’d the FED was still 5 months behind it. The trading bots got fucked yesterday and had to cover massive short positions and go long so 2x buying pressure so the CTA positioning is now skewed long but that is an ever changing thing