A chief financial analyst worries about retirement post-recession
Baby Boomers are still struggling to recover from the Great Recession, which is big time putting their retirement in jeopardy. The result? Working longer and lowering expectations of what their golden years will be like.
A new survey from Bankrate.com paints a bad overall picture for Americans 50 to 64, with some 26 percent saying their financial situation has deteriorated in the past year. No other age group has reported such financial difficulty, and it's a reflection of some who lost their jobs and still haven't recovered income-wise from that predicament.
Some 17 percent of that age group reported that they've dipped into their retirement savings to pay for an emergency.
"The numbers are pretty troubling," says Greg McBride, the Bankrate's chief financial analyst. "Americans age 50 and up have the highest propensity for tapping their retirement accounts for unplanned expenses and in particular those between the ages of 50 and 64. Those are the years you ought to be piling money into retirement savings and not depleting it prematurely."
McBride calls it a carryover from the financial crisis and the weak economy that followed, when the older group was hit hard.
"In many cases they were unemployed, underemployed or just making less money than they were in years' past," McBride says. "What emergency savings they had may well have been depleted when those issues arose years ago. Now when unplanned expenses arise, they find themselves tapping their retirement account."
McBride says that includes 401(k)s and IRAs, which is a problem that will cost them in their retirement. With any money you take out and don't put back in -- either a loan you don't repay or a hardship withdrawal -- it's taxable distribution. So you take a 10 percent withdrawal penalty if you're under age 59 ½, and even if you do repay that 401(k) loan, you lose tax efficiency, he says.
"You have to pay it back after tax dollars," McBride says. "Even if you are pulling money out of a Roth IRA, where you can withdraw your contributions without penalty, even then, it's a permanent setback to your retirement planning. You don't get the ability in future years to make the contributions you should have made in the past."
Overall, the study found that 21 million Americans aren't saving for retirement, and 30 million tapped their retirement savings within the past year. It showed that Millennials were the least likely to dip into their retirement funds prematurely, with only 8 percent doing so in the last year.
That group, by the way, had the most improved financial situation over the past year, with 40 percent saying they did better and only 11 percent say they're worse, McBride says. Meanwhile, one in four American households have no emergency savings at all. The good news is that only 13 percent overall tapped retirement accounts for emergency expenses compared to 19 percent in 2011.
"I'm concerned about this generation that hasn't saved enough and particularly those who are depleting what limited retirement savings they have either early in retirement or the years leading up to retirement," McBride says. "They're going to have to work longer, save more, and dial down their expectations of what they want in retirement."