Data from Vanguard shows Americans are pulling money out of their retirement accounts early at record rates to help make ends meet.
Last year, 6% of Vanguard’s clients took a hardship withdrawal, which allows them to access funds in tax-advantaged retirement accounts, such as a 401(k), before they reach retirement age. That was up from 4.8% in 2024, the asset management giant said.
Taking a hardship withdrawal is not ideal for a few reasons, one of them being that investors are subject to a withdrawal penalty of 10% for taking money out of their account before 59½. On top of that, they are then taxed on any gains. However, perhaps most importantly, they rob themselves of future growth potential on that money, especially if they are still far from retirement age.
Why the actual fuck do we need to pay a penalty on our own money? We put the money in, it’s my fucking money. I love how something absolutely fucked up needs to happen just so you get the luxury of paying a fee on TOP OF fucking your savings over just so you can get over the hurdle of what ever terrible happened.
Because Mitt Romney needs three fucking private islands and if that means you have to suffer, so be it.
Finally, a real fucking response.
Because that was the deal to be allowed to invest that money without paying taxes
The goal, at a societal level, is the incentivize keeping it in a retirement fund
You can always pay yaxes and invest the money in a brokerage account if you don’t want to risk penalties
That’s fine but why does the incentive become a hurdle when life gets in the way? If I lost my job, and my house, and needed money, getting penalized for having life happens doesn’t look like an incentive anymore.
Because if you didn’t do that, everyone would put 100% of their money into their 401k (at least up to the contribution limit) and then withdraw it right back out to avoid paying taxes on it.
You pay taxes when you withdraw. The 10% is additional penalty for early withdrawal.
You are generally better off doing a loan if your plan allows since you pay yourself back with interest. Of course that requires you to be employed and planning on staying at that job until it’s repaid.
You pay income taxes when you withdraw (meaning withdrawals are treated as income). However, 401ks also have the benefit of not being taxed while they grow. So you can contribute money pre-tax and don’t pay taxes while the money grows.
Yes of course but what we’re discussing here is ramifications of early withdrawal. There is a 10% penalty on top of the regular income tax.
Fair, I was trying to add context on why there is a penalty. Should have made that more clear.
I understand that, but the other user can’t seem to imagine why they won’t let you withdraw this tax-free income without any sort of penalty.
They said they can’t understand why they have to pay a penalty not why they have to pay income tax.
And my comment was regarding the reasoning why they charge the penalty. It’s not a rainy day savings account.
Because the cost of the agreement is the promise not to withdrawal. Otherwise you’re asking for something for nothing.
So I should have foresight to years later if I may have a life altering instance happening in my future?
Yes typically you would build an emergency fund before investing money so that you’re prepared with a plan for a life altering event same as investing in a 401k is preparing for retirement.
Putting fees on early withdrawals actually disincentivizes people from using 401ks or Roth IRAs. I’ve been unemployed for 3 of the last 5 years and I know that I will not be investing in retirement accounts until I have several years of steady employment under my belt, simply because I know I may need that money. The job market simply isn’t stable enough for me to even think about parking my money somewhere I can’t access it. I know I’m not alone.
I get what you’re saying but they should at least allow you to withdraw if you become unemployed.
Also makes everyone with a 401k push for lower taxes long term.
That’s just one reason 401k is shitty. 401k was invented by Wall Street to enable them to use our retirement money as “float” and collect fees on top of that. It was sold to companies as a less expensive replacement for the pension plans most jobs used to offer back in the day. It was sold to employees as a “set it and forget it” way to do “investing”, and somehow became the default option.
A 401k just rides on top of the stock market and gives the bare minimum of control to the user. Everyone has the same shitty dozen or so conglomerated investment funds to choose from. All that while the operators collect fees that might seem small to the layperson, but if those fees were allowed to compound they would actually make a massive difference in their wealth over a long career.
If your company offers a match, yeah, take the free money. Sometimes you’re allowed to take loans as well which can help if you have tons of debt. (The cool thing about those is the interest gets paid into your own account). Otherwise, basically anything else is the way to go, whether that’s a self-directed IRA or even just a regular brokerage account, real estate, literally anything. The only problem being the learning curve, but learning is more accessible than ever. If you really don’t want to learn there are also broker-managed accounts now that are fairly cheap.
Taxes exist to shape behavior. The behavior they wanted to shape was to get you to save for your own retirement.
Taxes should exist to create and fund the things that hold society together. There should be incentives to save money for retirement. Those do not always need to overlap.
Taxes should exist to create and fund the things that hold society together.
IOW: shape behavior.
I remember my dad emptying his retirement savings in the wake of '08. Super fun to be experiencing all this again. Troops in the middle east for extra nostalgia.
Gosh, damn. Exact same story here too. If we could just go back and tell them, right?
My dad was upset and panicked “Every time Obama opens his mouth we’ve lost more money!”
I didn’t get how any of this worked back then. I still don’t completely but I was just a kid. I wish I could have just convinced him to chill and wait it out. (And I knew enough to tell him to turn off the “24/7 screaming heads channel” but was unsuccessful…)
The upheaval that followed was not a positive life experience…
So freaking sad reliving all of this again and seeing people either haven’t learned to not panic-pull or are just that terribly desperate.
Weirdly, with my meager means, I’m trying to figure out where to put money in… y’know just in case this thing starts working again like it’s turned around in the past…
It’s not ideal, but keeping food on the table, a roof over your head, and light/heat running are going to be bigger priorities than worrying about a tomorrow that might not come, anyway.
Yeah, the real dystopian truth is that people who are able to pull from a retirement account as a stop-gap are in a much more fortunate position than countless peers who live paycheck-to-paycheck and haven’t been able to squirrel anything significant away.
This is exactly my mindset these days. I never managed to get ahead, hell i barely ever managed to catch up. I’ve been paranoid in the past about my inability to put aside any savings, but now i don’t even think it matters. In the end, the healthcare industry will ultimately take all of my money–there’s no way i can afford treatment for even minor problems, much less the big stuff that lies in wait for us when we get older. So why bother trying to create a savings–just to have them take it all away? So i can squeak a couple more years of life, penniless after having battled cancer? Fuck that.
You all should pull out. It’s obviously a scam of the ~1% holding 90% financial markets. They’re draining your money. How can the economy provide a livable retirement in the future when it can’t provide a livable present?
This is just nonsense why is it being upvoted just because it’s ‘leftist shaped’?
The stock market is the primary means of wealth transfer from the working class to the owning class. For a working person buying stocks allows you to recapture some of that wealth transfer.
You don’t get to opt out of the wealth transfer part of this by not owning stocks, you’re just letting the already wealthy increase their share of the extraction.
How can the economy provide a livable retirement in the future when it can’t provide a livable present?
This is either meaningless or even worse, anarcho-primitivism. Assuming you meant the stock market then the people who are extremely wealthy with passive income from stocks are certainly living off it.
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The snake is biting its own tail.
I had to do this once. Had car issues due to running over a crowbar that somehow bounced up and hit my car. I heard and felt the impact, saw smoke in my rear view mirror, and immediately pulled off the highway into a parking lot. I got out and a soon as I turned the car off all of the oil poured out. The oil pan got ripped, and later found out the engine got damaged.
Mechanic and insurance both decided it was least expensive to spend $9k parts and labor to replace the engine rather than total the car. I had to pay $3,000 for the deductible. Being young, renting, and making $11/hr, I didn’t have that kind of savings. I did have the money in my 401k.
My 401k allowed me to take a loan out against my 401k. It would get deducted out of my paycheck each week until it was paid off. The advantage to this was there was no interest, but I did have to pay a 10% penalty for early withdrawal, so I ended up having to take out more than $3k to cover the penalty.
Only other catch was if I quit or were fired before repaying the full amount the remainder of the balance was due the next month - and I was close to quitting to change careers. A few months later got a much better job in IT but could not repay the loan amount, so I “defaulted” on it which isn’t as bad as it sounds. The loan amount just gets reported to the IRS as income, and I had to pay taxes on the full amount in addition to the penalty.
Not ideal at all, but being young-ish and only having the option to try and get a loan from a traditional lender at a much higher interest rate would have been worse.
Damn good job navigating through that so well man
When I took a 401k loan, you paid yourself back at 5% interest I believe. That makes up (mostly) for having the money you borrowed out of you portfolio. You should not have had to pay the 10% penalty size you didn’t take a distribution.
Boomers traded stable pension funds (minus the occasional embezzlement scandal here and there) for funding your retirement based on gambling in the stock market…
My parents are getting rekt right now…
A boomer should have very little money in stocks at this point since they’re so volatile. As you get closer to retirement, its better to transfer your investments to something more stable like bonds.
Must be fake news. Trump himself said usa does better than ever. Prices down, afordability up, gas almost free, more jobs, more profit, all
warsspecial ops won in a day and foreign countries pay for all that via tariffs /s“They’re begging to make a deal, we can go wherever we want”
I feel like he’s talking to the American people, telling us we better drop the Epstein shit or he’ll invade more countries and thereby ruin ours even harder
Buy the dip?
I’d like to get back to contributing, but I’m getting close to 12 months unemployed. :(
almost 2 years over here. As much as I hate what such a stupid thing it would be I am hoping trump will try to termporarily improve the economy by allow people to take money out after age 50. Lots of folks will be on social security with no savings in a few years. After he is gone of course. OMS at least I hope he will be gone.
All part of the plan. Work until the janitor finds you at your desk, Slave!
You will own nothing. You won’t even be happy. You just own nothing.
Before Trump finds a way to siphon them dry no doubt. Also,people are out of work and under paid
I thought it’s because they don’t trust the money to be there anymore in a few years (or be worth nothing), but apparently it’s mostly because of economical struggle.
Really sucks for them because the market has been fucked to hell by trump and his anti-Epstein-attention event
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