A “Recovery” in Which Baby Boomers are Borrowing from Their 401(k)s?

Baby boomers and others are suffering financial setbacks that cause them to take desperate action.

Money Magazine at Time.com wants to warn you about the financial damage you do by taking a premature withdrawal from your retirement account: “Why Millions of Americans Are Raiding Their Retirement Savings.”

So why are they? For a headline that promises an answer, the article is rather vague. It certainly can’t be the economy because we’re in the middle of a “recovery” right? So they don’t blame the current economy. Instead, the villain is “the effects of the financial crisis.” Get that? The financial crisis is over but people are still having financial difficulties that are caused by it.

  • With the effects of the financial crisis still lingering, 30 million Americans in the last 12 months tapped retirement savings to pay for an unexpected expense, new research shows. 
  • Two-thirds of Americans agree that the effects of the financial crisis are still being felt in the way they live, work, save, and spend, according to a report from Allianz Life Insurance Co.

Two thirds is a lot of people! What exactly is the difference between a financial crisis that is “still lingering” and “still being felt” and a financial crisis that is simply continuing—one that is still here?

Boomers were most likely to take a premature withdrawal as well as incur a tax penalty, according to a survey from Bankrate.com. Some 26% of those ages 50-64 say their financial situation has deteriorated, and 17% used their 401(k) plan and other retirement savings to pay for an emergency expense.

More than a quarter of people who are supposed to be nearing retirement are doing worse than they expected.

Once again, that sounds like a financial crisis to me.

Also, there are about twenty percent of Americans who have a much more dire perspective on the American economy:

One in five can be called a post-crash skeptic—a person that experienced at least six different kinds of financial setback during the recession, like a job loss or loss of home value, and feel their financial future is in peril.

Some 41% of post-crash skeptics have stopped saving; 77% have no confidence in financial institutions; and 67% view the markets as risky. In each case, those figures are at least double the rate of the population as a whole, Allianz found.

Of course, the number of Americans who have no savings is greater than those 41% of “post-crash skeptics.” Earlier this year it was reported that about a third of Americans have no savings!

Remember how the economy was described at the end of George W. Bush’s second term. Can you imagine what the media would be saying if we had a Republican in office now?