Why Wait for Retirement to Start Spending My Retirement Funds?

As if Americans weren’t doing a poor enough job of saving for retirement, it turns out that many have raided their retirement funds for other purposes. In a Wall Street Journal Online/Harris Interactive Personal Finance Poll, 27 percent of adults who are planning for retirement confessed that they have made a “premature withdrawal” from their retirement funds.

This includes 6 percent who’ve done so due to a job loss in the family, and an equal number who’ve done it for a down payment on a home. Three percent have tapped their nest egg to cover mortgage payments, matching the number who’ve done it due to “overspending,” divorce or unexpected health problems in the family. Five percent have raided their funds to cope with credit-card debt, and 3 percent to pay other debts. A blithe 1 percent have done it for “recreational expenses, including vacations.”

Worries about retirement finances don’t end, alas, when one retires. A study by the Employee Benefit Research Institute and Mathew Greenwald & Associates finds a steep drop in the number of retirees who are “very confident” about having enough money for a comfortable retirement, from 41 percent last year to 29 percent now. There’s been a similar falloff in the number who are very confident they’ll have enough to cover basic expenses, from 48 percent to 34 percent. Given how little they have in savings, it’s a wonder this many feel confident. Aside from home equity and defined-benefit pension plans, 51 percent have less than $10,000 in savings, while another 18 percent have between $10,000 and $50,000. Just 12 percent have $250,000 or more.

Turmoil in the markets has altered workers’ views of how they’ll finance their retirement, according to Gallup polling. The number citing home equity as a major source of retirement income has slipped from 30 percent last spring to 26 percent now; the number citing stocks/mutual funds has dropped from 24 percent to 17 percent. There’s been an uptick (from 27 percent to 31 percent) in the number putting Social Security on this list. The most mentions (by 54 percent) still go to a 401k, IRA or other such retirement account.