I quoted The New York Times as follow:
Temporarily suspend mandatory annual withdrawals from Individual Retirement Accounts and 401(k)s. What Should I Do?”>My 401k Is Losing Money. Allow savers to withdraw 15 percent, up to a maximum of ,000, without paying a penalty as the law currently requires for withdrawals before age 59½. Current rules require investors to start selling stocks at age 70½. What Should I Do?Put Savings On Autopilot and How I Saved 0,000Should I Borrow From My 401k Plan?
Copyright © 2008 Pinyo B. These withdrawals are subject to normal taxes.
However, I do like the idea of not forcing people to withdraw their money if they don’t need to. This will allow poor performing portfolio more time to recover and keep more money in the stock market.
Why I Don’t Like The Early Withdrawal Plan
There are many reasons why I don’t like the plan. First, the high opportunity cost that many people may not realize. Let’s say you are 30 years away from your retirement and you withdraw ,000. At a 7% average annual growth, that ,000 could grow to over ,000. Sure, it’s nice to have the money now, but at what price?
Second, what does this really accomplish besides depleting our savings and future retirement fund? Is it (A) to help spur the economy, (B) to help homeowners pay their mortgages, (C) to help middle class face financial hardship? May be there are other reasons, please feel free to add yours below.
To Spur The Economy
If the hope is to spur the economy, then I don’t think it will work well. Let’s see, you withdraw ,000 and spend the money. As a result, businesses do better due to influx of cash and the stock market may perform a little better. However, the huge outflow of money from retirement accounts will have the opposite effect. In this case, I think it’s a wash and doesn’t really do anything except making everyone poorer in the long run.
To Help Homeowners Pay Their Mortgages
If you are one of the homeowners who can’t afford your mortgage because you recently lost your job this may help you stay afloat for a few months. Hopefully, you’ll get a new job before the ,000 runs out, but job is extremely hard to find in this economy. So it may or may not work out.
If you are one of the homeowners who can’t afford your mortgage because the teaser rate on your variable rate mortgage ended, then I don’t think ,000 will help you for very long. Eventually, you’ll run out of money unless you can make up the difference in a few short months — i.e., by spending less or earning more money.
Here’s another article I wrote about saving your home from foreclosure. Some of these suggestions are quite drastic, but at least you are not trading your future for your home.
To Help Middle Class Face Financial Hardship
This is similar to the situation above. (digitalfingerprint: 69e8f4bf5bcfffdcbe9b25dc563db782)
If you don’t have enough money to deal with living expenses, raiding your retirement funds is just a short-term solution that will hurt you in the long run. Again, spending less or earning more money is the proper solution.
Now that we are talking about saving money, here’s a huge list of money saving ideas that you can peruse.
Conclusion
I understand that this proposal is just one of many ways to help shore up the financial crisis and economic hardship faced by millions of Americans. Hopefully this will provide some financial relief, but this is the last thing you should consider. Don’t forget the long-term implications when you are raiding your retirement funds, and make sure that the money you take out really does help.
Here are a few tips on how to handle the slow economy:
Handling My Finances in a Slow Economy at Single Guy Money
Tips to Survive a Struggling Economy at Being Frugal
Living In A Down Economy - Determining Your Bare Bones Budget at I’ve Paid For This Twice Already…
5 Strategies to Survive An Economic Slowdown at Moolanomy
Smart Moves and Hedges in a Bad Economy at The Wisdom Journal
Related Posts:
Obama Versus McCain And Your Retirement SavingsWhat’s Wrong with this 401k Asset Allocation?
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This post was written by admin on November 13, 2008
