Usage Of 401(k)s As An ATM Soars By 28% In Q4 | Zero Hedge

Nearly one-fifth all people with a 401(k) plan have at least one outstanding loan from it with those under 30 years old having taken an average 38.2% of their remaining untouched balance as the new ATM to maintain the credit-fueled standard of living. In a press release from Wells Fargo, data based on 1.9 million 401(k) holders shows that Q4 2012 saw a stunning 28% surge in the number of people taking loans from their retirement plans. While the numbers are scary for younger people, the older generation is taking more loans with 34.2% of those in their 50s and 28.9% of those in their 60s having taken loans from their retirement plans. Yet another example of the 'strength' of the recovery as those with at least one loan outstanding had an average balance in their retirement plan of $7,764! So much for the wealth effect.

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Via Wells Fargo,

Through an analysis of participants enrolled in Wells Fargo-administered defined contribution plans, the bank announced today that in the fourth quarter of 2012, there was a 28 percent increase in the number of people taking loans out from their 401(k) and that the average new loan balances increased to $7,126 from those taken out in the fourth quarter of 2011 - a 7% increase from $6,662.

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Of the participants who took out loans, the greatest percentage were to people in their 50s (34.2%), followed by those in their 60s (28.9%) and then by those in their 40s (27.3%). The increase among participants in their 50s was nearly double the increase among those under 30. This is based on an analysis of a subset of 1.9 million eligible participants in retirement plans that Wells Fargo administers.

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?The increased loan activity particularly among older participants is concerning because those are the years when workers can start to make ?catch-up? contributions and really need to focus on preparing for retirement,? said Laurie Nordquist, director of Wells Fargo Retirement. ?However, we know that this age is also the ?sandwich? generation, caught between paying for their kids? education and supporting elderly parents, which makes saving for retirement even more challenging.?

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In addition to the 2012 new loan activity, according to the Wells Fargo data nearly one fifth (19.2%) of people with money in a 401(k) plan had at least one outstanding loan, and of the outstanding loans, the average balance was $7,764. While older participants are taking more loans out than their younger colleagues, the younger a participant is, the greater the loan tends to be as a percentage of their 401(k) account balance. For those under 30, the outstanding loan balance is 38.2% of their remaining untouched balance. For those over 60, it drops to 21.1%. However, only about 9% of all participants under 30 have an outstanding loan, compared to almost 25% of participants in their 40s.

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?While the increase in loan activity is concerning, we know that loans are not the biggest driver of leakage from retirement savings,? said Nordquist. ?In fact, employees cashing out their 401(k) when they leave an employer are a greater concern. Those dollars are often spent whereas with loans the funds are often repaid and stay in the retirement nest egg.?

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Source: http://www.zerohedge.com/news/2013-04-12/usage-401ks-atm-soars-28-q4

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