More Americans are Eating Into Their Retirement Accounts In Order to Survive

American workers are doing something they couldn’t do not so long ago, using their retirement saving before they retire. They are using the money to help out in their current needs instead of saving for “a rainy day,” according to a recent research from the University of Michigan.  The change reflects the fact that Americans are getting older, job security is disappearing and it’s getting more and more difficult for regular Americans to make ends meet.

Frank Stafford, economist who wrote the study, says that, “If you leave people to their own devices, it’s tempting for them to use their retirement savings before they retire.” He went on to say, “Our data show that they’re withdrawing money for reasons ranging from out-of-pocket medical expenses, to home repairs of more than $10,000 like a new roof, to discretionary expenses like remodeling their kitchens and installing granite countertops.”

Before the days of retirement savings plans like 401(k) and others, workers couldn’t get their hands on their retirement benefits. But now all that has changed and the research shows that it’s a big problem. According to the report, more than one in four workers are dipping into their old age funds to meet current expenses and of those the majority are in their 40’s.  This is going to leave many of them destitute and dependent upon the government to take care of them when they hit old age.

Being behind in the mortgage payment seems to be the usual reason workers are raiding their funds. “Our analysis confirms what everyone suspected, which is that people are also using their retirement savings to help out in the short term, when a child is going to college or a spouse loses a job,” notes Stafford.

Diane Oakley, executive director National Institute on Retirement Security, said, “We’re going from bad to worse. Already, fewer private-sector workers have access to stable pension plans. And the savings in individual retirement savings accounts like 401(k) plans — which already are severely under-funded — continue to leak out at a high rate.’’

The study found that about 6% of adults aged 25 to 44 reported cashing in some of their pension money. At age 59 ½, when penalties for early withdrawal end, the percentage of Boomers raiding their retirement funds rises to 15% — a proportion about equal to the rate of withdrawal among those aged 65 and 66, who are more likely to have already retired.

The widespread breaching of retirement accounts has led some advocates to conclude that policy makers and employers should expand their vision when thinking about their workers’ retirement needs.

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