Large numbers of American households were forced to plunder their retirement accounts to make ends meet during the last year, even as the federal government plunged trillions of extra taxpayers’ dollars into the economy to keep it afloat.
And that grim news is going to add to the looming retirement crisis already faced by tens of millions.
And the sums weren’t small, either. More than 80% of those borrowing money and of those making withdrawals took over more than $25,000, and about a third in each case took out more than $75,000.
Those taking money out of their accounts were helped by emergency provisions of the CARES Act passed by Congress last spring, which made it easier and less costly to borrow or even withdraw money from a tax-sheltered retirement account to cope with the crisis.
Kiplinger’s survey was oriented towards the wealthier end of the market to begin with. The median household income of those in the survey was $119,000, the magazine said. That’s way above the median overall U.S. household income, which according to the U.S. Census is just under $70,000 a year.
So we’re talking up the upper-middle class. The magazine surveyed people aged 40 to 74 who were still working and had at least $50,000 in retirement savings. The median age was 51.
The magazine didn’t say how much overlap there was between those who borrowed and those who made permanent withdrawals.
Paying living expenses was the number one use of the money, people said.
Last month the New York Times’ Tara Siegel Bernard reported that more than 2 million Americans made withdrawals from their workplace retirement plans to cope with the personal finance effects of the lockdowns.
And retirement plan giant Fidelity Investments tells MarketWatch that 1.6 million of its 401(k) and 403(b) clients took withdrawals last year under the CARES Act. That’s just over 6% of its customers. The average withdrawal was just over $20,000.
With the stock market flying high and the economy apparently rebounding, many on Wall Street are feeling somewhat cavalier about the economic hangover from Covid 19. But the devastation wrought on many retirement plans and household budgets hasn’t even begun to be counted. So far, the problems have been papered over, almost literally. Between Jan. 1 and Sept. 30 of last year the federal government borrowed $3.4 trillion and pumped it into the economy to mask over the effects of the crisis, the Federal Reserve reports. (Fun fact! That’s more than total U.S. deficits from 1789 through 1991.)
Those polled by Kiplinger said they’d raided their retirement accounts even though they’d also been helped by federal stimulus checks and payroll tax deferrals. And most of those polled had kept their jobs during the crisis.
Oh, and the median retirement savings among these upper middle class savers was $189,000—about enough to generate a lifetime annuity income for a 65-year-old couple of $760 a month. Without cost of living adjustments.