October 23, 2007

Want a sense of how bad debt-saddled and spending-addicted Americans are doing? "Cash-strapped Americans raiding their 401(k)s"


Housing-addicted Americans thought the party would never end. They stopped saving, they spent like millionaires, they raided their homes for spending loot, and now they're starting to suck dry their 401ks.

THIS IS SICK!!!! NOTE TO AMERICANS - YOU DON'T NEED MORE CHEAP CRAP FROM CHINA!!! PUT DOWN THE DAMN VISA CARD AND LIVE WITHIN YOUR DAMN MEANS!!!

What's next? Peeling off drywall to heat the home? Putting your kids on eBay? Addicts I tell ya. Addicts.


Despite potential tax and investment problems, more investors have been borrowing from their 401(k) plans or taking hardship withdrawals in recent months, some retirement plan providers say.

Many in the field expect more borrowing in 2008, as consumers struggle with tighter credit and potentially higher mortgage payments.

Increased borrowing on 401(k)s could be because of the credit crunch and slumping housing prices. To be sure, the indications are preliminary; it's too early to say why it's happening, according to the Hartford Financial Services Group.

40 comments:

tim73 said...

More bad news:

"The Regional Food Bank of Northeastern New York, which covers 23 counties in New York State, cited a 30 percent rise in visitors in the first nine months of this year, compared with 2006.

Maureen Schnellmann, senior director of food and nutrition programs at the American Red Cross Food Pantry in Boston, reported a 30 percent increase from January through August over last year.

The reality of hunger is right here," said the Rev. Melony Samuels, director of The BedStuy Campaign against Hunger, a church-affiliated food pantry in Brooklyn.

The pantry scrambled to feed 5,000 new families over the past 12 months, up almost 70 percent from 3,000 the year before.

"I am shocked to see such numbers," Samuels said, "and I am really concerned that this is just the beginning of what we are going to see."

Source:
http://www.chron.com/disp/
story.mpl/ap/fn/5230263.html

coke adds life said...

The buzz from the coke lasts longer than that giddy feeling from buying a new pair of pumps. And costs less too!

Don't tell me you were not expecting this.

srini said...

If you are foreclosed on a property, can the bank go after your 401K?

MarkIFC said...

I have been saying for the last several years that Americans have been living too high on the hog for too long.
Everyone wants it NOW!!
My kids don't want to wait for their birthdays or Christmas for the latest thing.They want it NOW! So Mom or Grandma run out and buy it and I get mad.
Young couples can't start out in the little 2 bedroom bungalow. Noooooo they have to have the new 4 bedroom 2 story in the new subdivision.
My wife runs the food bank at our church and I can say we have also seen a dramatic increase in the number of people seeking assistance. Where we could stretch a shipment of food to last the whole month we are now wiped out by the second week. Last month we were only open 1 week because of the huge number of people. The thing I can't believe is the government considers a family of 4 making less than $42,000 a year eligible for assistance. You'd think a family could live comfortably on that.

borkafatty said...

The buzz from the coke lasts longer

-----------

Ya but the only problem is when the buzz is gone, you crave for more.

IE: The Great American Shopper..I Gotta Have it.

Anonymous said...

I used to practice as a bankruptcy attorney. Time and time again, clients would come to me AFTER they had emptied their 401(k), on of the few assets that cannot be touched by the bankruptcy trustee.

I stopped doing bankruptcy because I couldn't take the stupidity any longer.

Marky Mark said...

Well - what do you expect? Hillary and the democrats have promised to take care of everyone - so why take care of yourself in retirement? - the government will do it!

Darreningainesvillefl said...

People have to do what ever it takes to keep up appearences no matter what. They appear wealty to friends and co-workers, so they have no choice. If they dont, they will all know it was all what a fraud they are.

Anonymous said...

Is this the REIC making good on the threat to "bring down the stock market" (if RE goes south?)

All these folks would be much better off if they KEPT what little they have in their 401K and DITCHED the d@mn house! That's one where Jim Cramer may well be right.

Before REIC cheerleaders get all giddy about their "We'll take you down with us" projections, remember most 401K platform funds have upwards of 5% in cash to honor redemptions. With as much as these "true believers" were dumping into their HOUSE payments I doubt they had much in their 401K's to begin with.

Unlike this crowd, most FB's only did "the company match" (if that).

DinOR

Anonymous said...

@tim73,

We're starting to get those stories popping up all over the place. Talk about "working on thin margins" huh?

DinOR

Anonymous said...

At least the people "dipping" into their 401K to pay their mortgage are taking responsibility to pay their debts. Certainly not a long term strategy, but it's better than hitting up friends & family or ignoring the debt.

Mark in San Diego said...

Anything that hastens the collapse of the American consumer economy is good!. . .we need a 1929 style depression for the good of the country. . .people need to learn a lesson. . .go ahead, run up the credit card, borrow against the home, and tap out your 401K. . .only when people are broke and living out of food banks will they stop spending. . .although even then, they will probably collect bottle returns to buy more Walmart crap.

sheep said...

Inflation and recession are kicking my ass even though I am cash and asset rich with no debit. I can only imagine the pain borrowers, realtwhores, and REIC workers are in. Oh wait I am a REIC worker in the second hand trade. I have caught my own falling knife as sellers outnumber buyers in everything from used furniyure to cars.

FlyingMonkeyWarrior said...

@ Sheepvest,
RE: Inflation and recession are kicking my ass even though I am cash and asset rich with no debit. I can only imagine the pain borrowers, realtwhores, and REIC workers are in. Oh wait I am a REIC worker in the second hand trade. I have caught my own falling knife as sellers outnumber buyers in everything from used furniture to cars.
______________________________
Yep, and you and I are the 'prepared and forewarned" sheep.

Keep your head down.

My timeshare client has stopped paying me for clients I send them, can bankruptcy be far behind for these TS developers as well?

I'm going outside to watch the shuttle launch.

peace out.

fmw

Anonymous said...

To be fair, many of the 401K raids are to fund our currently much higher cost of living and to cover unexpected costs, such as medical bills or to get by while a wage earner is disabled.

With the taxes and penalties attached to early 401K withdrawals, usually a person has to be hurting pretty badly before taking that option.

Still, it may be smarter to tap a 401K than to resort to a payday loan, pawn shop or other borrowing emporium.

Katie

sam said...

Apt picture (crackrock would be more comparable)

Funny thing is that 401K's are very well protected from BK, along with IRA's and pensions (eg. OJ).

So here, the f'ed homedebtor raids their only bk protected asset (the 401K), incurs tax penalties (which are like debtors herpes, with no cure from bankruptcy) so that they can make a couple more payments on your underwater "investment".

THEN GO BK ANYWAY w/ no retirement and a tax penalty for withdraw!

Proves once and for all most of the f'ed borrowers are delusional hoping for a nearby recovery or financially retarded. Or maybe they have a bad crack habit that can't be funded with refi's anymore.

we are so screwed said...

we need a 1929 style depression for the good of the country...

That is the honest to god truth!

Those depression era Americans were tough cookies compared to the lapdog-toting litigious pansies we have become today.

We sure could use victory gardens and a good dose of reduce, reuse, and recycle.

borkafatty said...

At least the people "dipping" into their 401K to pay their mortgage are taking responsibility to pay their debts.

----------

Yes I agree, but what are these people going to look froward to when they retire...Social Security HAHAHAH!..

And if I may I highly doubt many are paying off their Debt like you say...I would say they are living off of it. MORE THINGS!!!

Anonymous said...

sam,

Exactly. Now they'll wind up with delinquent house payments AND a tapped out 401K. A band-aid at best.

In addition what will happen when those pre-mature withdrawl 1099's hit their mailbox in January? What irony! They bought a house for "all the great tax advantages" and then wind up liquidating the only thing between them and having to retire in El Salvador and eat major tax penalties! Sad.

DinOR

Joey said...

we need a 1929 style depression for the good of the country...

Oh no - would that mean..

People would have to mow their own lawn instead of hiring Mexicans?
People would have to fix things instead of throwing them away and buying new?
People would have to cook and clean their own food?

Anonymous said...

"Young couples can't start out in the little 2 bedroom bungalow."

Problem is that in many bubble cities young couples cannot even afford a "little bungalow." Here in DC, "starter" single family homes are probably going for about 600K these days- I would just about have to kill to be able to afford one.

Jake said...

Well, raiding the 401(k) can seem tempting. $20,000+ in medical bills this year can really hurt, especially after you use the $10,000 in the cash to pay for part of it. The other investments have been more illiquid, and having to take capital gains taxes and such. Also it gets tempting when the doctors warn both you and your spouse that you both might not live past 50 and you're both in your late 20s.

Our combined 401(k) is $100,000+, but we both want to keep up the hope that we won't die young. And we're meeting with financial people (next one is on Thursday) and family has been helping with food and chores (mowing lawn when we are too sick to do it, etc). Great family and in-laws.

Anyways, our file cabinet is huge!!! And my dad just gave us NeatReceipts to help keep track of the medical bills and other receipts, so maybe our taxes will be less this year. We are having fun saving money on the essentials by coupon shopping. We did spoil ourselves this weekend by using Target prescription coupons (get a prescription and get a $10 gift card) and rebates on GrindHouse so that the DVD only cost us $0.51.

There are a lot of ways to cut costs and we are really enjoying cooking together and packing lunches, which have been for a while, we just do it all the time now.

Anonymous said...

>>>>>>>
"Young couples can't start out in the little 2 bedroom bungalow."

Problem is that in many bubble cities young couples cannot even afford a "little bungalow." Here in DC, "starter" single family homes are probably going for about 600K these days- I would just about have to kill to be able to afford one.
>>>>>>>>

SFH maybe, but what about a condo or TH in a marginal area? What is the entitlement that makes people think they should be able to buy a SFH?

This is part of the problem. Who's supposed to buy the condo's and TH if not the young couples just out of school?

Anonymous said...

Marky Mark said...
Well - what do you expect? Hillary and the democrats have promised to take care of everyone - so why take care of yourself in retirement? - the government will do it!

October 23, 2007 1:44 PM



=================

DING DING DING.

With Hillary and her fellow communists running things we won't need 401k, health insurance or mortgages. The great leader will provide us with "free" health care, "free" housing, "free" education and of course "SAVE" social security.

Might as well blow all your 401k money on some fun now. They will confiscate it from you eventually, why not enjoy it first?

king of the Bitter Renters said...

You NEED to raid your 401k, before the Pig Men on Wall Street do it.

In the future, 401ks will be illegal. We will go back to pensions.

And don't give me that Hitlery shit, it will be the bankrupt Rethugs out front who will pass the law.

Anonymous said...

Anonymous said...
"Young couples can't start out in the little 2 bedroom bungalow."

Problem is that in many bubble cities young couples cannot even afford a "little bungalow." Here in DC, "starter" single family homes are probably going for about 600K these days- I would just about have to kill to be able to afford one.

October 23, 2007 5:34 PM


==========================

Simple solution. Move to another city. I own a house that I bought for $218K. Same house anywhere near DC would be $700K easy. So I stay where I am. I have no sympathy for people who move to high priced areas like DC and then complain about the cost of living. You sound like people who move next to the airport and then complain about the noise.

sam said...

DinOr

Good to hear from you again.

Funny I did once tap my 401K to buy consummables (not crack or China crap). Paid back the loan. It was the early 2000's and I paid myself 7% interest, which was a far better return than the market.

But I doubt such happy outcomes will occur here. Beware the sheeple creating trends.

SAM

Peter T said...

I hate taking money from my 401k and would not do it for my housing speculation gone wrong. If a family, however, is hungry now, what is left to do? I think that most people taking from their their 401k do it for necessary costs (food, electricity, rent) not for the crap, which they paid with their HELOCs. I might be an optimist that I assume the people to be reluctant to raid their 401k, or I might be a pessimist that I assume that many are already in such dire straits that they have to.

Borrowed and bot PMs said...

I figured the debt crisis would crash the markets and thus pulled as much (50%) of my savings plan out in the form of a loan. Took the money and paid off the balance of my land. Debt free now except for this loan which I pay back at 5.125% to myself and will have paid off in a little over 2 years. The rest of the cash I bot PM coins - gold at $600 a coin, silver at $13.75. May or so 2006.

I think I did good except the darn DOW ran from 11000 to 14000... but how could we have known that criminal Paulie could keep the plates spinning so long?

Anonymous said...

Sam,

Yeah, you just had to know at some point... this was going to become a factor. In ways I'm surprised it took THIS long!

Again (and this is just my guess) many of the folks taking this route don't realize that there is no equity TO save? I mean, I can see if you've been in a place for years and years, bought at a reasonable level and had put a lot of blood, sweat and tears into it.

But let's be honest, most of these people bought "turn-key" places with the sod and swim pool already in so no blood or sweat. Since they haven't been paying on it for more than a year or so, no tears!

My guess is that most of them still are under the delusion they are "still in the game" and are trying to save their credit for their next amazing "play". Nothing else makes sense.

DinOR

AmazingRuss said...

"Simple solution. Move to another city."

If it worked that way, people would do it. Unfortunately, income tends to track with house prices...it's that supply and demand thing. Sure, I could buy a house for 20k in Detroit or some tiny farm town in northern Montana, but I would not have any income to speak of...I'd go from Software Engineer to gas pumper, if I was lucky.

Anonymous said...

fed gas pumper..51 cent dvd? why... the winers might be those who blew all their money...

sam said...

Dinor,

It's damn tough to walk away from losing positions. Even in the anonymous stock market, people (including myself w/ S&P puts) tend to keep losers they believed in, hoping they'll come back despite all evidence and nagging feeling to the contrary.

I have to think ditching the loser investment is especially hard if your neighbors/ kids friends are watching you do it. Tough situation.

I can see jumping on the 100% down Democratization of Extreme Leverage (much like I can theoretically see myself being a marxist in the 1930's). But watching someone financially ruin. is watching a complete trainwreck- coke is an apt metaphor here.

SAMc

Anonymous said...

There are only a few reasons that an employee can withdraw funds without penalty from their 401K plans. Buying a home and to pay for mortgage payments are two of them.

As the plan admin of our 401K plan at work I approved a withdrawal last year so that an employee could withdraw $10K to purchase a home. About 3 weeks about the same employee came to me asking to withdraw $2K from her 401K account again to make a delinquent mortgage payment on a $400K mortgage more than $6K in arrears.

Not good out there in la la land.

Anonymous said...

srini said...
If you are foreclosed on a property, can the bank go after your 401K?

October 23, 2007 12:11 PM

No. 401K are safe from bankruptcy but there is talk of a bill allowing penalty free loans from 401Ks to "save" a mortgage. Horrible idea for most underwater adjusting rate homedebters. The loan has to be repaid back in 3 years and would no longer be protected from bankruptcy. What a deal!

Tyrone said...

Couldn't agree with MarkIFC, more. For a great example of a 20-dumbthing that had to have it all right now, visit debtkid.com. At 23, gets a $500K mortgage, becuase he "can afford it". Year later he loses it. Now he's $300K in debt. Here are two great new posts at his site:
1) If my plan A business hits $15,000/mo I want to reward myself with a new phone, specifically the new At&t Tilt Phone!
2) I want a time machine. Darn It!Posted by debt kid on October 19th, 2007 Or at least something to speed up time. Sometimes I feel like I’m just waiting…. waiting for tomorrow. Waiting for next week. Always working, yet always waiting.

In 1), he's planning purchases before he has money. In 2), he's expressing his lack of patience, and inability to achieve long-term goals over anything more than weeks or months. I have written, Perhaps it is upbringing by baby boomers that has deluded this generation.

Tyrone said...
This comment has been removed by the author.
MarkIFC said...

"I hate taking money from my 401k and would not do it for my housing speculation gone wrong. If a family, however, is hungry now, what is left to do? "

You come to our food bank and we give you Choice cut New York Strip steak, $5.00 a box Quaker Oats cereal, liquid Tida detergent, Downy Fabric softener, Snackwell snack cakes, Lays potato chips, and lots of other expensive food items.
I wishI could afford to eat so good but I can't afford that kind of stuff on my middle class salary. We have to eat the cheap generic stuff.

Anonymous said...

Hello Anon October 23, 2007 6:57 PM: You are an ignorant and arrogant idiot with your baseless commentary. True market forces will purge the dillusional price and value fantasy world about real estate in DC area. With your perspective and attitude, you should be the one to move out of the DC area.

Andrew Hac said...

I hate dogs.
I hate stupid Americano.

Go 'Groid !