For many workers with retirement plans, debt load outpaces savings
Veronica Smith is one of many Americans who find it difficult to put money aside for a rainy day or retirement.
The North Side resident withdrew $5,000 from her retirement plan in September because her wages as a medical transcriptionist were slashed by more than half.
Smith worked for three decades at UPMC, which sponsored the savings plan, until the end of June, when it outsourced 130 transcriptionist jobs to a company she says paid her about 60 percent less.
“I had just purchased a new car in May, right before this happened,” said Smith, 55. “So now I'm just trying to hold onto it.”
A survey by financial guidance firm HelloWallet of about 50,000 people with defined contribution plans found 60 percent are unwilling or unable to contribute more to retirement savings plans than they accumulate in debt. The economic research and financial advisory firm in Washington based its findings on surveys done in 2010 and 2011.
In a defined contribution plan, such as a 401(k), an employer often matches a portion of the employee's contribution. Unlike a defined benefit plan, or traditional pension, a defined contribution plan does not guarantee a set balance.
“With more household income going to pay off debt, households may have less money to save and face higher costs of living in retirement,” said HelloWallet CEO Matt Fellowes.
The company found that more than half of those whose debt increased more than they saved are older than 40, college-educated and earn at least $50,000. The survey included debt from credit cards, auto loans and home purchase and home equity loans.
Matthew Yanni, a principal at Yanni & Associates Investment Advisors in Wexford, said most of the firm's clients tend to contribute healthy amounts to retirement savings plans and don't recklessly accumulate debt.
“But I do have some clients who, for unique reasons, are taking on more short-term debt than we agreed upon as part of our game plan,” said Yanni, whose firm serves clients in 14 states.
Yanni said he knows some people “bit off more than they could chew, by buying more house than they can afford.” That happened to many who believed home values would climb without end, until the housing bubble burst in 2007.
Mortgages account for about 75 percent of total household debt, according to the survey.
In addition, about 20 percent of those surveyed put more on credit cards than they contributed to defined contribution plans. Fellowes said he doubts that trend has changed much.
“In particular, I suspect that there are more people building up credit card debt faster than retirement savings, and fewer people building mortgage debt faster than retirement savings,” said Fellowes.
The HelloWallet report said the health of the economy did not make a big difference in terms of retirement plan participants' debt and saving behavior. A survey covering 2006-07, when the economy was brisk and unemployment low, showed 46 percent of participants amassed debt faster than they saved money.
Smith said she is determined to avoid tapping her savings plan for a few years. She incurred a 10 percent early withdrawal penalty for pulling that $5,000 out before age 59 1⁄2.
“I hope not to have to do that again,” she said.
Thomas Olson is a Trib Total Media staff writer. Reach him at 412-320-7854 or email@example.com.