July 17, 2020 – By Joe Dwinell
Jittery consumers are dipping into their 401(k) and other retirement funds at a growing rate as the coronavirus pandemic continues to wound the economy, a new survey found.
That worrisome trend shows 22% of those responding to a nationwide survey admitted they had borrowed from their retirement nest eggs, according to a new poll by American Consumer Credit Counseling. Money can be withdrawn from a 401(k) without penalty beginning at age 59 1/2.
“It’s crazy times we’re living in,” said ACCC’s Madison Block, who ran the poll for the Newton-based agency. “It’s concerning because this is a problem that won’t just be around this year.”
Loans from 401(k) accounts must be paid back over five years, if it’s not used for a home purchase. You’re usually allowed to borrow up to 50% of a vested account balance to a maximum of $50,000, experts say. Interest rates are determined by your plan.
“What we see among some Americans is perhaps what many Americans fear most: having to place their long-term financial security at risk just to get through and survive what is happening today,” said Steve Trumble, president and CEO of ACCC.
“We always advise clients to avoid borrowing against retirement funds unless they are faced with an absolute and total financial emergency,” he added in a statement. “That more than 20% of people are doing just that is yet another measure of this pandemic’s severity of impact.”
But the news was not all bad.
The ACCC June poll of 411 Americans — aged 25-65 with incomes of $100,000 or less — found that the number of respondents who report zero confidence in the U.S. economy rose from 16% in the March survey to 23%.
The percentage of respondents who described their employment as “very stable” also increased from 27% in March to 34% in June.
Also, unemployed Americans have been receiving an extra $600 a week, but that is set to stop by the end of July, and the payments are to likely run out even earlier.
“The good news for those households that are feeling the most pain is that mortgage companies, credit card issuers, and other lenders continue to work with borrowers through forbearance and payment deferral,” Trumble said. “But our economy and way of life now face structural problems: from the continued closure of schools to uncertainty about safety on public transportation and the inability to reopen entire sectors safely. We will be dealing with this for a very long time.”