Would allowing penalty free withdrawals from 401(k) accounts help the economy?

[pkbites]

From THIS OP-ED page letter:

Edited for length and SDMB rules:

*Give people a one-time chance to take out 401(k) money without penalty. *********************************************************

***************** It would give consumers (70% of the economy is consumerism) the chance to dig out of debt, put down payments on cars (the average car on the road is 10 years old) and remodel or buy homes. The beauty of it is it’s a stimulus with people using their own money.

Democrats would love it because it would directly help the middle class, and Republicans would love it because it would not use tax dollars or grow government.

If it’s popular, the markets would drop, but the wealthy would pounce on the chance to make money on undervalued stocks. Taking out 10% to 15% of 401(k) money should not be a significant blow to one’s retirement, and if the individual is under 50, he or she would have plenty of time to make it up.

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So what do you think? What are the pros & cons? If you’re pro, would 10-15% be enough? If you’re con give detailed reasons why.

I’m completely undecided, which is why I want to hear the debate on this.

[Try2B_Comprehensive]

I don’t know if I am pro or con, but my first impression is that it will allow people to sell their retirement savings equities without a penalty. In these times, a lot of people will probably go for it, so they’ll start spending money again. The stock market will go down from all the selling, and guys like me (not wealthy) will buy cheap stocks. Then people will not have enough retirement savings and our children can bail them out, after the people proposing this are probably dead.

[pkbites]

@Try2B_Comprehensive

I don’t know if I am pro or con, but my first impression is that it will allow people to sell their retirement savings equities without a penalty. In these times, a lot of people will probably go for it, so they’ll start spending money again. The stock market will go down from all the selling, and guys like me (not wealthy) will buy cheap stocks. Then people will not have enough retirement savings and our children can bail them out, after the people proposing this are probably dead.

Without commenting on your post, I have to ask, how many people are actually retiring on 401K’s with no other pensions or social security?

[Try2B_Comprehensive]

@pkbites

Without commenting on your post, I have to ask, how many people are actually retiring on 401K’s with no other pensions or social security?

I don’t know exactly. I found some stats here:

Some 21 percent of all respondents said they have reduced their 401(k) contributions or personal savings in the last six months in order to get by, while 23 percent of the $100,000-and-over group said they had done so.

Thirty-six percent said they don’t contribute anything to retirement savings , like a 401(k) or a IRA.

As for short-term savings, 33 percent of those surveyed reported that they don’t put any money aside each month, up from 25 percent in 2008.

There is evidence of pressure on 401ks. Baby boomers are starting to retire. People a few years further down the line may want to sell now before the market is too saturated. We’d see a lot of selling at today’s already depressed prices, effectively a haircut on people’s 401k savings. I think it stands to reason that some people will tap themselves out too early.

I don’t know for sure. Do you think most 401k investors are in a position to take advantage of this without hurting themselves? For instance, can we interpret the proportion of people not contributing to 401ks at all as evidence that they are entirely a luxury one can do without?

[emacknight]

This is just what Americans need, more rope to hang themselves with. Am I the only one cynical enough to believe there are a significant number of Americans that would empty it all if given the chance, so they could rush out at get another iPhone?

Try2B Comprehensive summed it up pretty well, “…our children can bail them out…”

We’ve got this persistent recession because of people not being able to plan for the future. Didn’t we learn out mistake the last time we said, “let’s let Americans borrow all of the equity in their house; it will allow them to pay off expensive credit cards, get a new car, and make home repairs.” So I guess you’re right, in the very short term we could have a huge serge in our GDP, like what we saw with the housing bubble. Then we all get to suffer through the hangover, again. Best case scenario is that people will have to cut back their spending even more to make additional 401K contributions. Or they’ll REALLY have to cut back when they run out of retirement funding.

It’s like that canker sore on your cheek, it would heal if you’d just stop picking at it.