During an appearance at The New Yorker Festival on Sunday, Brooklyn Nets’ point guard Jeremy Lin revealed that even though both of his parents were laid off at the time, his mom nonetheless took money out of her 401(K) (colloquially known as “401k leakage”) to get him through the NBA draft.
News and information website UPROXX notes Lin “went undrafted out of Harvard, and was twice waived before making an indelible mark in the league with the New York Knicks in 2012. One person who probably wasn’t surprised by his rapid ascent to global fame? Lin’s mother, Shirley. Talk about sacrifice.”
It was worth the gamble. Lin established himself as a “cultural icon” in the NBA, and also just “inked a contract with Brooklyn that will pay him nearly $40 million over the next three years.
“If Shirley hasn’t already had her debt repaid, basically, it’s probably only a matter of time until she will – many times over, too,” the site concludes. “Something tells us, though, that such an obviously proud, loving mother already feels her financial risk during a time of need was well worth it.”
We’re glad it worked out. As for the rest of us, however, recent studies published by Aon Hewitt, Fidelity and Vanguard all point to a cash-out rate of almost 60 percent for smaller-balance 401(k) accounts. And Retirement Clearinghouse recently demonstrated that the actual leakage for these accounts may be as high as 89 percent when you factor in the cash-out rates of safe harbor IRAs, into which many of these accounts are swept.
“Premature distributions, cash-outs of retirement accounts, and defaults on loans are major sources of DC asset leakage and were responsible for outflows of nearly $80 billion in 2014,” says Shaan Duggal, a research analyst with Boston-based Cerulli Associates. “Limiting these leaks is of the utmost importance to participants and the retirement industry.”