Those over 50 should not tap 401 (k) plans for foreclosure

There are many people facing foreclosure. The situation is totally unacceptable. The number of older homeowners facing foreclosure, over 700,000 of whom are 50+, means it will be hard to recover in a slowing economy, and the fact that statistics are that high is also totally unacceptable. Imagine working all your life just to see it disappear, regardless of age. Should we be proud of ourselves for stimulating the economy for a while? The country should have strong economic stimulus plans, and should never rely on duping homeowners to release the equity in their homes for economic gains.

With lower credit scores and foreclosure problems, the gap between those with strong FICO scores and those without has increased. Those over 50 are seeing a drop in 401-K retirement programs, but not too long ago the government suggested private investing as a Social Security offset. Thank goodness we dodged that bullet, but we only did so long enough to run into another minefield.

A consensus is emerging that 401(k) plans will not provide an adequate supplement to Social Security to the majority of American workers. Initially Americans thought it was because people did not have the self control to save regularly. Today in a collapsing economy 401 (k) contributions stop when jobs are lost. If your retirement date is still decades away, it’s tempting to tap your 401(k) plan for emergency cash.

Those over 50 know retirement is not that far away, and $635 a month from Social Security is no retirement plan at all.

If you raid your 401 (k) you’ll deplete an asset that’s off-limits to creditors. If you go into foreclosure or file for bankruptcy protection, creditors will go after your assets to repay your debts. But federal law protects your 401(k) from creditors, says Etti Baranoff, associate professor of insurance and finance at Virginia Commonwealth University.

It would be silly to assume that creditors are not attcking this law as we speak. They want your money. On the other hand the government has the responsibility to act in a responsible manner. Regulators must wake up first, which is a problem in itself.