Middle Class Tapping Investments Just to Make Ends Meet

ICI reports that equity mutual funds suffered net withdrawals totaling over $33 billion in the first seven months of 2010. Myriad reasons were cited for the trend, including a mistrust of stocks, the flash crash and an aging population. 

With wages stagnant for those who still have a job "a lot of people are having to tap into their nest egg to keep their living standards going," says Damien Hoffman, co-founder of WallStCheatSheet. "A lot of people are living out of principal. There's no other way to get around that."

Fidelity' recent report of a sharp increase in the number of 401(k) participants seeking loans or hardship withdrawals in the second quarter is further evidence of the disappearing middle class. "These are basically emergency ways to fund yourself. We think it's a scary statistic," Hoffman says. "Where is the middle class going to be if they draw down their 401(k)s drastically over course of next few years?" [Yahoo]

Hoffman stresses this trend is most prevalent among Baby Boomers, including many considered to be in the "upper middle class," who thought they'd be able to draw much more from fixed-income securities than offered in the current environment of ultra-low rates. With many younger Americans facing a difficult job market, stagnant wages, potentially higher taxes and the burden of caring for aging parents, this trend could expand with devastating socio-economic consequences.