Study Shows More Americans Are Raiding 401(k) Accounts To Pay Bills

A new national study shows that too many of us are cashing out 401(k) accounts to pay bills. If that retirement account is calling your name, a financial expert advises you to stop listening.

When the bills pile up and money is tight, many people turn to their 401(k) accounts to help ease the bind.

Downingtown, Pa. CPA Jacquelyn Basso says it’s not a good idea to raid your retirement; you’re getting money now that you’ll need to live on when you’re older. Read more >>

Nearly half of Americans are one emergency from financial ruin

Nearly 44% of American households are one emergency away from financial ruin.

That means they don't have enough savings to cover basic living expenses for three months if something unforeseen happens such as losing a job or falling sick, according to a recent study by the Corporation for Enterprise Development. Almost a third of Americans have no savings account at all.

"These families have had to prioritize today's expenses over tomorrow's goals," said Andrea Levere, the group's president.

California ranks 38th among all states for the ability of its residents to achieve financial stability, the report says. Those living in the Golden State are bedeviled with an average $13,825 in credit card debt and high housing costs.

Many people living precariously have jobs. About 75% are working full time, and more than 15% are earning middle-class incomes of more than $55,000 a year, according to the report.

But despite steady jobs, many of those surveyed are surviving paycheck to paycheck, trying to cope with the recession's aftermath; one emergency could tip them over "the edge of financial disaster." Read more >>

Workers raiding retirement saving accounts to survive

A large and growing share of American workers are tapping their retirement savings accounts for non-retirement needs, raising broad questions about the effectiveness of one of the most important savings vehicles for old age.

More than one in four American workers with 401(k) and other retirement savings accounts use them to pay current expenses, new data show. The withdrawals, cash-outs and loans drain nearly a quarter of the $293 billion that workers and employers deposit into the accounts each year, undermining already shaky retirement security for millions of Americans.

With federal policymakers eyeing cuts to Social Security benefits and Medicare to rein in soaring federal deficits, and traditional pensions in a long decline, retirement savings experts say the drain from the accounts has dire implications for future retirees.

“We’re going from bad to worse,” said Diane Oakley, executive director of the National Institute on Retirement Security. “Already, fewer private-sector workers have access to stable pension plans. And the savings in individual retirement savings accounts like 401(k) plans — which already are severely underfunded — continue to leak out at a high rate.” Read more >>

40,000 join credit unions in bank dumping protest

Image via WikipediaMore than 40,000 people joined credit unions during the "Move Your Money" and "Bank Transfer Day" movements this past Saturday, continuing the exodus of customers fed up with big banks.

The new customers were the latest in a surge of members credit unions have signed up in recent weeks, as public anger over proposed fees at Bank of America and elsewhere has boiled over, the Credit Union National Association said Tuesday.

"Since Sept. 29 -- the day Bank of America announced its now-rescinded monthly $5 debit card fee -- average estimated membership increases nationally were around 20,000 new members each day, " CUNA President and CEO Bill Cheney said in a statement. "On Saturday, consumers doubled the pace. It's clear that consumers kept up their interest in credit unions."

In a previous survey, released late last week, the industry group said an estimated 650,000 consumers had joined credit unions between September 29 and the first week of November, bringing with them an estimated $4.5 billion in new savings accounts. More...

US Banks Steal $24 Billion from Customers in Extortion Racket

Image via Wikipedia

These banks wouldn't even exist unless we bailed them out. These people are low-life felons and crooks who steal in broad daylight with impunity as Barney Frank wags his fat, stubby little finger at them as if they were his unruly children. Despicable.

Raw Story reports US banks billed their customers 24 billion dollars in penalty fees for overdrawing their accounts last year, a 35 percent increase over the previous year, a study has found.

Rather than deny payment, most banks in the United States routinely approve transactions not covered by funds but charge customers an average fee of 34 dollars each time.

Fees are charged whether the overdraft is for five dollars or 50 dollars, under overdraft protection programs in which customers are automatically enrolled, the study found.

"Overdraft fees are most typically triggered not by checks, but by debit card transactions and ATM withdrawals that could easily be denied for no fee," said the study by the Center for Responsible Lending.

"These practices are especially alarming given that institutions automatically enroll consumers into this type of program, even when lower-cost forms of overdraft protection -- such as a formal overdraft line of credit or a link to a savings account -- are usually available," it said.

Some 51 million account holders have been billed for overdrafts at least once a year, and 27 million of them have been hit with the fees at least five times in a year, the study.

In 2009, experts expect fees to grow to 27 billion dollars.

Lawmakers have introduced a bill in Congress that would require banks to change their policies to allow consumers to decide whether or not to enroll in overdraft protection programs.

More US Govt Idiocy - $500 for Every Newborn

Kimberly Palmer
Coming Soon: $500 for Every Newborn?
Imagine a world where every baby received a trust fund at birth. It might sound like a fairy tale, but being born into money--or at least into a $500 savings account--could soon become reality for all children born in the United States. Lawmakers are considering a bill that would give each newborn just that, with the goal of promoting savings that would later be used for education, a first home, or retirement. Here's what you should know about the ASPIRE ("America Saving for Personal Investment, Retirement, and Education") Act:

How would this program work?

The ASPIRE Act would give each child born in the United States a $500 savings account. Recipients could then use that money once they were older to pay for education, a first home, or retirement. Low-income children would receive additional funding, and all participants could add to their accounts over time.

Would it really help people save more money? Five hundred dollars isn't much.

The purpose of the accounts, says Reid Cramer, director of the Asset Building Program at the New America Foundation, is to get people invested in their future. "Having an asset has the potential to change the way people think and plan for their future, and sometimes those effects can be generated just from small asset holdings," he says, adding that it's possible for people to build up significant savings over time. The ASPIRE Act also pairs the creation of the accounts with financial literacy programs in schools.

Indeed, pioneering research by University of Michigan professor Michael Sherraden suggests starting individual savings accounts for lower-income people can lead them to feel more confident about the future. Recipients of such accounts also report feeling that they have greater control over their lives, including the ability to plan for education and retirement costs. Further studies have shown that owning assets is associated with greater empowerment and civic participation, increased income, and positive educational outcomes.

Why not just give the money to low-income people who really need it?

Entitlement programs that benefit everyone, such as Social Security and Medicare, tend to enjoy more widespread support and therefore last longer. Programs aimed exclusively at lower-income groups, such as welfare programs, often attract more controversy and receive less political support.

"The important thing is that everybody gets an account," says Cramer, and that it's opened automatically so families don't need to take much action. It would still be a progressive program, he adds, because as the ASPIRE Act is currently written, poorer families would receive additional funding.

Don't we already have a lot of policies in place that encourage savings?

Yes, but they tend to mainly help people with higher incomes. According to Sherraden, two thirds of retirement tax benefits go to households that earn incomes of $100,000 and higher. Policies that encourage homeownership, such as tax deductions on interest payments, similarly benefit those who can already afford to purchase homes. Other savings systems, such as 529 accounts for college savings, depend on parents opening the accounts and making deposits. The ASPIRE Act is different because each child would have an account and receive an initial deposit.

Has this been tried anywhere before?

Yes--in Great Britain. Since September 2002, children born in the United Kingdom have received a $500 savings account, just as the ASPIRE Act would provide in the United States. Recipients can withdraw the money after the age of 18; unlike in the proposed U.S. version, there are no restrictions on how they can spend the money. About one quarter of the recipients add extra money to the account, and, according to calculations by Cramer, most of the accounts go up in value so they are worth over $600. (The money is invested in a diversified portfolio of stocks, much like college savings, or 529, accounts in the United States.) Since the program's first enrollees are now only 7 years old, it's too early to say how they will spend the money once they turn 18.

Could this really become law in the United States sometime soon?

Lawmakers are expected to reintroduce the ASPIRE Act before the end of the year, and it already enjoys bipartisan support. The main challenge for supporters will most likely be over how to justify the cost at a time of great budget deficits and competing demands for federal dollars. Critics argue that the program would simply create another costly entitlement program. Writing for the Portland-based think tank Cascade Policy Institute, policy analyst Sreya Sarkar says the program would provide benefits to one generation by taxing another.

How would this program be paid for?

Over the first decade of its life, the program would cost around $37.5 billion, and would start at around $3.25 billion per year. Cramer argues that because the money would be invested through the savings account, it would help spur economic growth. Lawmakers sponsoring the bill have said they would pay for it by making other cuts, but the bill doesn't specify what those cuts would be.