The future that is America

A large and growing share of American workers are tapping their retirement savings accounts for non-retirement needs, new data show.

The withdrawals, cash-outs and loans are draining nearly a quarter of the $293 billion that workers and employers deposit into their 401(k) and other savings accounts each year, undermining already shaky retirement security for millions of Americans.

Is this because standards of living have been going up so much (free Facebook), or because some individuals, rightly or wrongly, feel compelled to make up for stagnant or declining job market prospects?  You tell me, here is more on that one.  I call it the tyranny of consumption smoothing, an underreported theme in welfare economics.  And there is this:

Fresh data from Vanguard, one of the nation’s largest 401(k) managers, show a 12 percent increase in the number of workers who took loans against their retirement accounts or withdrew money outright since 2008.

The most common way Americans tap their retirement funds is through loans, which must be repaid with interest. Those who withdraw money face hefty penalties. In most cases, they not only incur a 10 percent federal tax penalty but also pay capital gains taxes.

And from the NYT, this article considers how the feeling of scarcity drives the desire to borrow.  These points are related to income inequality, and here you will find my colleague Garett Jones on whether individuals with low time preference will inherit the earth (pdf).