401k Withdrawals More Common Among Minorities During Economic Downturn

People meet potential employers at a job fair held at the Jewish Community Center (JCC), on March 21, 2012 in New York City. More than 600 people registered to attend the job fair and meet potential employers.

Here's more evidence of just how hard the recession was on minorities.

African-Americans and Hispanic-Americans were more likely to tap their retirement accounts to get out of financial distress during the economic downturn, according to a new report from Ariel Investments and Aon Hewitt.

Of those with company retirement accounts that lost their jobs in 2010, 63 percent of African Americans and 57 percent of Hispanics completely cashed out their retirement savings, according to the study. About one-third of white and Asian-American savers that lost their jobs did the same.

Cashing out on or taking a hardship withdrawal from a retirement fund is a very costly move that cuts into current savings in addition to wiping out future returns. The government charges a 10 percent penalty for hardship withdrawals or cashing out, in addition to charging income tax on this cash.

Retirement accounts are effective largely because of their ability to grow quickly if they stay intact. Because of the compounding effect of interest rates, a retirement account with a 12 percent contribution rate ends up being three times as large as a retirement account with a 3 percent contribution rate after 35 years, according to the report.

The percentage of African-American savers taking hardship withdrawals from their company retirement accounts rose 40 percent between 2007 and 2010 to 8.8 percent of all African-Americans with company retirement accounts. Moreover, the percentage of Hispanics taking hardship withdrawals spiked 60 percent to 3.2 percent, while the percentage of white and Asian-American savers taking hardship withdrawals stayed below 2 percent.

One alternative to cashing out or withdrawing from a 401(k) is to take out a loan from a company retirement account and repay it through higher salary deductions. But these loans are risky. Though they have competitive interest rates, if you lose or switch your job while you have a loan outstanding, you have 60 to 90 days to pay it back in full, or else it becomes a withdrawal subject to penalties.

Half of all African-American savers and 40 percent of Hispanic savers have outstanding loans from their company retirement accounts, as compared to about a quarter of white savers. The percentage of African-American savers with outstanding loans from their retirement accounts spiked 25 percent between 2007 and 2010, and 38 percent among Hispanic savers.

The decision to withdraw from your retirement savings could force you to retire later than planned or threaten your financial well-being during retirement. About 51 percent of Americans are in danger of not being able to maintain their living standards in retirement, according to the Center for Retirement Research at Boston College.

The recession has hit minorities much harder than whites, and minorities were in a weak position to begin with. In 2009, African-Americans had just 5 percent the net worth of whites, and Hispanics had 5.6 percent the net worth of whites, according to the Pew Research Center. Blacks and Hispanics have lost more than half of their net worth since the housing bubble in 2005, in contrast to whites who lost 16 percent of their net worth, according to Pew.

African-Americans also are much more likely to be jobless. 14.1 percent of African-American workers were unemployed in February: nearly double 7.9 percent of white workers in the same time period, according to the Labor Department.

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Comments

[MrNewman]

03:16 AM on 12/13/2012

i mean hey...white people have been doing this for alot longer...they just stopped using dogs ropes and hoses in the last 60 years...and they have been building their money system for hundreds...dont worry "African-Americans and HIspanics" will catch up to "whites and Asians" soon enough. The Asian stats are surprising...ill bet they are only including the Chinese and Japanese professionals...and not the many more poorer Hmong and Viet and Mien "Folk". At any rate. take care of your finances...despite racial affiliation...you guys get really worked up over race and money. Watch the white folk flood back to africa for their industrial boom...rape and pillage rape and pillage...as history repeats itself. (yes i know the whole hmong is kinda chinese...thing)

[Roland Petit]

07:43 AM on 07/23/2012

Retirement funds compound at what interest rate? What't the true inflation rate (not the gov't lies)? Kind of like buying an ice cream cone on a 90 degree day and watching the ice cream melt away faster than you an consume it.

[Life With HC]

11:02 PM on 04/07/2012

This author sounds racist inferring the recession wasn't hard on whites also. Ms. Kavoussi, can you tell us some of the special problems faced by European Americans in the recession.

[grod805]

10:09 PM on 04/04/2012

When can minorities do something that's better than average? This is getting depressing.

[chubdog]

01:24 AM on 04/08/2012

I think the Asians are doing something better and they are one of the smallest minorities. So many times they exceed Whites in most good categories such as household income and education. Kind of funnies how the author of this article didn't list the Asians as a minorty?

[Siebenstein]

05:43 PM on 04/04/2012

If you need money you need money !

[Life With HC]

11:03 PM on 04/07/2012

Absolutely - need a new big screen tv and Super Lotto is over 100 million.

[Siebenstein]

11:09 PM on 04/07/2012

What are you mumbeling?

[chubdog]

01:39 AM on 04/08/2012

Don't think the article stated that you are doing that great either. 25 percent is still a very high number of people robbing their retirement accounts. Most people in this country won't have enough to retire when they would like. The article paints a better picture than I see around me. Many people only put in the minimum amount to get the matching funds and even worst some don't even take advantage of that. We buy rims, gold and tennis shoes while you buy cigarettes, guns and wrangler jeans. Still as broke as the rest of us.

[Sablescorpion]

05:28 PM on 04/04/2012

If only I had taken a withdrawl before the Wall Street wiped it out with their shenanigans! At least I'd have that cash in my pockets instead of theirs!!!

[CorpTreason]

06:49 PM on 04/04/2012

You could move it to a money market though and keep the tax protection for the money, even if it would be deteriorating under inflation. The only good reason to remove the money is if you've been living off credit cards and know your regular salary can't possibly pay back a loan from your 401k to pay off the cards and also cover ongoing living expenses. Then it makes sense to just pay off the credit cards and scale back to live within your means, then rebuild retirement savings.

[Taildog11]

04:49 PM on 04/04/2012

First, Racist white people, if 1/3 of white people do it that means in actual numbers you folks dwarf black people in doing the exact same thing. What it does not say is black people usualy open businesses or pay down debt while they are looking for a new job or starting their own business. White folks, why do you always fall for percentages? It does not reflect what really goes on. Yes, the financial institution want you to keep the money there so they can steal or make money off of yours and you may not even make it to these artificial dates of retirement. You middle class folks are so gullible it's not funny.

[Siebenstein]

05:44 PM on 04/04/2012

You are way off with your "racial" focus . Get a life.

[Jerry Villano]

05:55 PM on 04/04/2012

A little sensitive arent you Taildog11! read the article, instead of reacting as it was an insult. it was meant to shed the light on what is going on...would you rather keep it under the rug. maybe when intelligent people read this stats...maybe they will take a different path to secure their future. Using racial terms too insult will get you nowhere...you write in a bitter and racist tone. And where is you stats...where do blacks open businesses, what kind of businesses, what is the success rate...why isnt the black community progressing if so many are opening businesses....so many question, and i bet you dont have one answer..all you do is blame the white man. By the way most whites borrow and pay back their retirement fund...i know i have!

[bran0217]

04:43 PM on 04/04/2012

I have used money from my 401k without any plenty Not because I needed it for hard times some are facing ,It was cheaper than taken a loan out ,and paying interest
I don't Blame the President for the way things are in this country. You have to remember all this started under President Bush ,and the wars he brought us into ,At least this President is doing his best, Every time I used from my 401k I have made back with the stock market at and all time high

[G D]

05:50 PM on 04/04/2012

As much as I would like to blame Bush the problem goes back much further than him.

[CorpTreason]

06:51 PM on 04/04/2012

But it got so much worse under him. Maybe we should thank him for accelerating a crash that was inevitable, but that's about as much as I can credit him for.

[bran0217]

09:52 AM on 04/05/2012

I do know this When President Clinton was in office we had a robust job market a well as investments, and the Market hit all time highs ,When Bush took over everything came apart at the seems .We have never had a good times under any Republican President ,
If you recall when we had 1 party running all 3 parts of government ,it all went down hill

[Parker Roberts]

04:41 PM on 04/04/2012

this is exactly what obama wants. more reliance on govt. more desperate minorities. hopefully rioting in the street, as planned by soros and the union boys. coming to a bank presidents house near you soon. look for the buses, the screaming and the violence. brought to you with union money stolen from the taxpayer for work that was never done on a contract negotiated by a democratic congressman paying them back for the votes....a contrived civil war you paid for. enjoy!!

[Taildog11]

05:16 PM on 04/04/2012

Do you folks ever take any responsibility for the things going on in this country Parker? Or are you as stupid as you write?

[Jerry Villano]

06:00 PM on 04/04/2012

look who is talking stupid!...another derogatory term "you folks" = white person.

[Parker Roberts]

06:17 PM on 04/04/2012

riots in the street coming this summer bought and paid for by seiu. i take responsiblity for me. why dont you take responsiblity for yourself. your house, your education, your healthcare...its a free country and i dont work to pay for your entitlements. this is obamas plan. stick your head in the sand all you want. he wants a race war and you keep being a good useful idiot and keep hating and not dealing with facts. its the progressive way. you can always tell a liberal. they call names and never have facts.

[HeatherLGray]

04:34 PM on 04/04/2012

I'm curious to see how young people are handling a recession and steep student loans. College tuition continues to increase and yet it seems a college degree is more and more necessary because competition in the workplace is so high. Does anyone have any related links or stories that cover this?

Heather Gray
YAYA Connection Graphic Designer
yayaconnection.com

[Parker Roberts]

04:43 PM on 04/04/2012

we already know. they are living with their parents. living off their parents. taking their parents healthcare, which YOU pay for, not the parents. then when they go into the workplace they are burdened by huge loans they cant repay for an education taught to them by leftists america haters...and they dont have a single useful skill.

now kids start thier lives 100s of thousands in debt with an education that sucks and no jobs in sight. go obama!!!! everyone deserves a free everything so nothing is worht anything and everyone else pays for it!!

[Taildog11]

05:20 PM on 04/04/2012

Parker, again you are showing your ignorance!

[chubdog]

02:12 AM on 04/08/2012

I guess you are the only one in this country who doesn't get anything from the government? There is not one person in this country who gets nothing from the governmnet. If a parent is working and a student stays on his/her insurance, you are not paying for it? What world do you live in? College educated people are not hurting half as much as people without a degree. The return on that investment is so high that even with high student loans they are still going to come out so far ahead of people without a degree that they should thank Obama. In three or four years the extra pay is equal to the student loan amount. In some countries, there's no government aid which means your family pays or you don't go to college. Which also means if you are poor, you stay poor because an education is not available to you.

[Jerry Villano]

06:04 PM on 04/04/2012

the struggle to achieve higher education is nothing new! not everyone can or should go to College...many are not mentally or socially adept to that environment. all we can do as a nation is give the opportunity...then the responsibility shifts to the individual as too whether they achieve their goal or not. thinking that govt or society as a whole is responsible is ridiculous and not practical. no one is entitled to a free ride...NO ONE!!

[Taildog11]

05:21 PM on 04/04/2012

Youme, you are a fool!

[mxfw9999]

02:15 PM on 04/04/2012

Why would any one touck their 401K that money is for retirement not to be spent until then And then not taken out until required 71 1/2 years of age. Goes to show people only live for today

[Samearn]

03:11 PM on 04/04/2012

I think the article is suggesting that, because of difficult economic times, people have been FORCED to do so. People aren't going to make a choice to lose 10%+tax of their accumulated retirement savings if they don't feel they have to...

[kelly socal]

04:44 PM on 04/04/2012

Wow, you really don't know what it is to be needy!!!
P.S. Nobody in my immediate family has ever lived pass 70! So your so-called "retirement" is a biggest joke and slap in the face ever!!!

[A Colored 1]

06:30 PM on 04/04/2012

Kelly
you said " . Nobody in my immediate family has ever lived pass 70! So your so-called "retirement" is a biggest joke and slap in the face ever!!! "

Are you planning to die before 70? If so you should spend all of your money now and not plan for retirement. In fact you do not need a 401K or a retirement plan from your job. However if you live to 70 ...then you might have to become a WalMart greeter.

[SaveRMiddle]

10:47 AM on 04/04/2012

Goofy article. Takes a job to repay the 401K loan but if you have a job, you DON'T NEED to access those funds. There are literally millions who were forced to live off what they thought was going to be their retirements not to mention the permanent repercussions pertaining to loss of their homes or home values.

[MenloPark]

10:13 AM on 04/04/2012

so take out a loan on it if you still have a job? if they still had a job maybe they could...