When you draw it down long before retirement to pay ordinary living expenses:
This trend has been in place since the financial crisis, but the fact that it is accelerating is extremely disconcerting. First off, this is not the kind of behavior that should be witnessed in an “economic recovery.” Second, we need to remember the huge percentage of Americans on food stamps and/or disability. As we have discussed previously, many of them also have jobs. So essentially, a wage and a check from the government is still not enough to survive. They still need to tap into a loan from their 401k plans.
From the Washington Post:
More than one in four American workers with 401(k) and other retirement savings accounts use them to pay current expenses, new data show. The withdrawals, cash-outs and loans drain nearly a quarter of the $293 billion that workers and employers deposit into the accounts each year, undermining already shaky retirement security for millions of Americans.
[. . .]
“We’re going from bad to worse,” said Diane Oakley, executive director of the National Institute on Retirement Security. “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 underfunded — continue to leak out at a high rate.”
A report due out this week from the financial advisory firm HelloWallet found that more than one in four workers dip into retirement funds to pay their mortgages, credit card debt or other bills. Those in their 40s have been the most likely culprits — one-third are turning to such accounts for relief.