Wikinvest Wire

Investors raiding their 401k accounts

Thursday, September 25, 2008

Here's more sobering news about how American workers are responding to the recent stock market turmoil, housing market decline, credit crunch, vanishing wealth, and general feeling of defeatism.

From the Wall Street Journal comes this report:

With stocks falling, credit tightening and unemployment rising, small investors have been raiding their 401(k) accounts or slashing contributions to the popular retirement plans, according to the latest tallies of plan administrators. Others, eager to shield their portfolios from further damage, are reducing their exposure to stock mutual funds to near record lows.

The behavior -- described by some market watchers as panicky in the past week -- has led to worries that the retirement prospects are dimming further for Americans, most of whom no longer have private-sector pensions to rely on.

Recent 401(k) winnowing is coming in the form of "hardship withdrawals" -- removing cash from the fund, with a 10% tax penalty, for exigencies such as job loss, the prospect of losing your home to foreclosure or a big medical expense.

T. Rowe Price Group Inc. in Baltimore saw a 14% increase in hardship withdrawals in the first eight months of this year, compared with the same time last year.
Plan participants are said to be putting the withdrawn money into FDIC insured CDs while some of the money that stays behind is being moved from equities into fixed income funds.

In a move that runs counter to both conventional wisdom and everything that is known to be good and true about Money Magazine, the total 401k allocation to equities has dropped from 68 percent to 62 percent over the last year.

Reports have been circulating that many plan participants have reacted violently when informed that conventional wisdom is often wrong.

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dearieme said...

"allocation to equities has dropped from 68 percent to 62 percent over the last year"; oh the poor silly sods - still 62%!

Your arms of government, and Greenspan in particular, have an awful lot to answer for.

Tim said...

Silly sods... You are just full of new and interesting expressions dearieme. You must not be from around these parts.

fish said...

A little patience Tim, "Dearieme" isn't from these parts!

dearieme said...

Northern California? I shot through in 1966.

Tim said...

I never shot through anything...

getyourselfconnected said...

After I had thought about the Michael Douglas funny tidbit at the UN, it got me thinking about a "Wall Street" film sequel idea. Yes, I would love to write a movie script!

Here goes:
After doing jail time for his offences in "Wall Street", Gordon Gekko is released and after some initial resistance to backing him, he finds financial backing at the dawn of the Nasdaq Tech boom. Gekko becomes a master of the classic "pump and dump" tech IPO mania and makes billions. His ego gets him into trouble during the big crash, and at the films end he is broke and dejected.

Last scene: Gekko is working as a bank clerk (circa year 2002) when he is approached by upper management. They ask Gekko "What do you think about the possibility of more aggressive mortgage lending?" Gekko's eyes light up as he sees his way back to success. Film ends with headlines and film form today's debacle.

I think it would be a hit! Plus it would elucidate all the silly excess that was the tech boom/bust and the current real estate meltdown.

What do you think?

donna said...

I have a friend laid off more than a year now and his 401K is a major source of his now meager income. I'm currently paying his car loan so he can keep driving to interviews.

7.7 percent unemployment in CA, and going to get worse. They should suspend the early withdrawal taxes for the unemployed. It's ridiculous.

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