Recessions and retirement savings

So what happens when the economy hits a bump and some of the luster comes off the nation’s financial outlook?  Do people modify their behavior so that they can still save for retirement or do they just worry more because it’s something that they’re increasingly unable to do.

If what’s happening with retirement accounts is any bellwether, folks are pulling their savings out.  According to a recent MSNBC article:

“Some of the nation’s largest retirement plan administrators, such as Great-West Retirement Services and Fidelity Investments, are seeing double-digit spikes in hardship withdrawals and increases in loan requests, a sharp departure from levels that traditionally varied little.”

What’s interesting, is the article ties these 401(k) loans to credit card debt, which in turn is tied to living beyond your means, which will ultimately have a very real effect on US long-term economic stability.  And so we have a government offering up an economic stimulus package designed to reinforce an over-emphasis on consumerism.  Somehow it’s hard for me to follow the logic.

At some point, we’ll have to address the “direct hedonistic component,” which is what drives unwise consumer decisions.  That’s what gets us thinking, “Well, I could put this bonus towards my retirement (a distant unknown that could reduce future anxiety), but what I’d really like to have that new BMW instead (something that’s going to be enjoyable now- though the satisfaction will wear off over time).”

So it appears that the recession is going to take both a short-term and long-term toll if consumer continue to tap their retirement savings to cover poor spending decisions.  What would be interesting is if the economic stimulus package focused on making saving and retirement planning look patriotic, instead of a quick infusion of cash into the economy focused on spending, which is likely to do very little good over the long term and actually reinforces some of the bad habits that helped get us here in the first place (an economy overly reliant on consumer spending).

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