To make it through tough times more Americans have borrowed, stolen or raided their small retirement funds to make ends meet.
Loans from retirement funds jumped 20 percent last year. This really can’t be a big surprise to many. Faced with difficult financial decisions people will tend to gravitate towards the oath that seems easiest and less painful immediately.
It’s actually a classic example of hyperbolic discounting where a situation at hand today feels more urgent than one in the future.
The alarm over not being able to afford things leads people to make decisions in order to avoid more painfully imagined solutions like bankruptcy.
But what is actually more painful, a bankruptcy now that will take a couple years to overcome or retiring with little to no money left?
Logically an immediate bankruptcy makes the most sense. It allows people to discharge their debt, not have to raid the retirement accounts and actually leaves them better able to save for the future.
Along with setting themselves up to have to eat dog food to feed themselves in a future broke society, their poor debt relief decisions have left them unable to contribute as much to their retirement funds.
According to the Employee Benefit Research Institute survey, 27 percent of respondents said they are “not at all confident” they will have enough to retire comfortably. The reality is the actually number is much higher since acknowledgement would require people to overcome denial.
If you retire without sufficient income your choices are to continue to work, and most likely at menial jobs, or find a way to live for less.
The standard of life we expect in retirement may fall significantly short of what we will actually face.
At risk also are college savings for aspiring students. Parents already struggling to just make it month-to-month are having to cut back on their savings and are not able to put aside as much for college for their children.
The lack of college savings will require more student to either not attend college or go further in debt with dangerous student loans.
According to the College Board, students are already borrowing about twice as much as they did only a decade ago.
The more logical outcome to making these issues work is going to be to maintain a smaller or lower lifestyle than expected. That’s going to be tough for many people.