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The Retired Investor: Does It Make Sense to Borrow From Your 401(k) to Buy a House?
Younger generations cannot afford to buy a home. They cannot even make the down payments necessary to take out a mortgage. Borrowing the down payment from your 401(k) might make sense, especially if the Trump administration helps out.
Last week, the president's director of the National Economic Council, Kevin Hassett, said the administration was finalizing a plan for some 401(k) funds to go toward home down payments. He said it would be part of a series of White House initiatives on housing affordability.
"I'm not a huge fan," said the boss. Trump said, "One of the reasons I don't like it is that their 401(k)s are doing so well."
And that is true. The problem is that after several years of exorbitant gains, the potential for a large sell-off is growing.
Readers should know you can already use your 401(k) for a home down payment, either through a withdrawal or a loan, though both options have drawbacks. Under existing hardship withdrawal rules, buying a principal residence is one of the permitted reasons.
The problem is that you owe income tax on the withdrawal, which could also move you into a higher tax bracket. If you are younger than 59 1/2 years old, you owe an additional 10 percent penalty on the money you withdraw. You also lose out on years of future tax-free earnings on the money you withdrew.
However, you also have the option to borrow the money for a house from your 401(k) to the tune of $50,000 or half the value of your account, whichever is less. But there are several drawbacks. For one, you are required to repay the loan within five years and report it to the bank if you are applying for a mortgage.
In addition, if you leave your job, you must repay the loan by the due date of your federal income tax return, or the loan will be considered a withdrawal. That would trigger income taxes and possibly another 10 percent early withdrawal penalty if you are under 59 1/2 years old. Worse, depending on your plan, you may not be able to contribute to your 401(k) until you pay off the loan.
You are charged interest on the money you borrow, usually two points over the prime rate. The good news is that you are borrowing from yourself and earning a little on the funds you withdraw. The downside, whether borrowing or withdrawing, is that you miss out on potential investment growth for retirement savings. That final negative is what the president doesn't like.
How could the government help reduce the negatives? An increase in the borrowing or withdrawal limit might help. They could also do away with the 10 percent tax penalty for those under 59 1/2 if you were to withdraw rather than borrow funds or even make the withdrawal tax-free if it was earmarked for the purchase of a home.
For borrowers, the IRS could also extend the repayment period from 5 years to 10 years or longer. The rules could also change for those who have left their job. Rather than forcing repayment or treating it as a withdrawal, the rules could be changed. For example, as long as you obtained another job before the end of the tax year, the borrowing rules would remain the same and not trigger the exiting tax consequences.
The issue I am sure the administration is wrestling with is that withdrawing the money from your tax-deferred savings account to buy a house puts those funds on a different track. In an era when younger generations and many politicians are convinced there will be no social safety net like Social Security, saving for retirement becomes critical.
Making withdrawals or borrowing for a home from tax-deferred savings makes it easier to divert that money from its original purpose: compounding growth for your retirement through investing in the stock and bond markets. In exchange, you could say you are diverting some of your retirement money into real estate.
Given the growing dissatisfaction with their lot in life, younger generations might prefer the ability to own a home, start a family, and get out from under their parent's spare bedrooms or basements, worth the cost of a little less in retirement savings.
That may not be a bad thing. Over half of Americans' wealth today is attributed to their real estate holdings, namely their home. Diversifying one's investments is rarely a bad idea. If the rules were relaxed, and let's say two million Americans borrowed $100,000 each for a home, those transactions would have a substantial impact on U.S. economic growth as well. In turn, financial markets would rise, and the remaining funds in an existing 401(k) portfolio of stocks and bonds would also gain.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
The Retired Investor: Administration Devises Workaround to Circumvent the Fed
Jawboning, bluster, threats, and court actions have yet to force the Federal Reserve Bank to do the president's bidding. Undeterred, Donald Trump thinks he has found a way to lower consumer borrowing costs without further Fed action.
Given his background in real estate, where borrowing is a way of life, it is no wonder he believes lowering borrowing costs for consumers is the key to affordability. As of November 2025, the U.S. consumer debt was roughly $18.10 trillion, a new record. Mortgage debt represents $13.39 trillion, while bank cards account for $1.09 trillion. Overall, consumer debt rose 2.9 percent from the prior year.
There is no question that, with that amount of debt, any relief effort would be well received by many voters. In response to an affordability issue that the administration denies, President Trump has demanded that credit card companies cap interest rates at 10 percent. He also ordered Fannie Mae and Freddie Mac to buy $200 billion worth of mortgage bonds. By doing so, he believes mortgage interest rates will fall, which could attract new buyers to the housing markets.
Both initiatives were announced on Truth Social rather than through a legislative proposal to Congress or by drafting new regulations. It makes one wonder if these are serious proposals or simply pre-election promises. But let's give the president the benefit of the doubt and ask: what does this accomplish?
Circumventing the Fed, which officially oversees interest rates, is questionable business, but it has happened before. Prior to 1935, there was really no difference between the U.S. Treasury and the Federal Reserve Bank; however, over time, a series of amendments made the Fed the master of monetary policy.
In the case of housing affordability, buying up bonds might work. After Trump's media post, long-term rates on U.S. 30-year bonds fell below 6 percent but have risen since. There has been little impact on the benchmark 10-Year bond. The problem is that lower rates, while making a mortgage more affordable, can also push home prices higher. He also signed an executive order this week to prohibit institutions from buying single-family homes, something he believes has contributed to rising housing prices.
As for capping credit card interest rates for one year, which are now, on average, higher than 24 percent, it has been tried before, not only here in the U.S. but also in other countries. President Jimmy Carter, through his March 1980 credit control policy, attempted to limit additional borrowing through credit cards. The policy lasted about two months. France, South Africa, Ecuador, Japan, Kenya, South Korea, and the Philippines are other examples of what happens when caps are imposed.
In every case, caps shrink credit access for high-risk borrowers( most retail borrowers). Credit card companies (read: banks) simply stop lending or won't approve applicants they deem high-risk, including low-income or subprime consumers. Smaller loans disappear, and average loan size increases.
Short-term credit dries up. Lenders shift to serving higher collateral borrowers. People who pay off their credit card charges in full each month are sought after. It usually ends with a series of workarounds. Retailers and auto dealers, for example, move in offering financing with baked-in high credit costs in their product prices.
Unregulated pawn loan shops, rent-to-own stores, payday lenders, and loan sharks all experience a sharp increase in business because most, if not all, of them are excluded from the interest rate cap. By now, you are catching my drift. The fact that the cap would only be instituted for one year could save consumers billions in interest payments, but once it ended, there is no guarantee that banks wouldn't raise interest rates to recoup their losses.
JP Morgan's well-respected CEO, Jamie Dimon, said in an Economist interview last week that the proposed 10 percent cap on credit card interest rates would effectively cut off credit for roughly 80 percent of Americans. He said the policy would be an economic disaster, shrinking access rather than protecting consumers.
History says he is right, but by then the votes would have been counted, and that's the objective. Welcome to American populist politics.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
The Retired Investor: Gen Z prefers stocks rather than houses to build wealth
Priced out of the housing markets, younger generations must look further afield to save for retirement. While the barriers to entry in the housing market keep rising, access to financial markets has gotten cheaper.
This is a vastly different attitude and behavior from previous generations. It has been a tradition here in America that the way to build wealth and enjoy it was to buy a home.
As a result, homeownership is today the most valuable asset for the average American and accounts for nearly half of their accumulated wealth. In just about any study today, rising home equity accounts for the lion's share of net worth.
Unfortunately, as I wrote in my last column, most Gen Zers cannot even afford the down payment on a home or the monthly payments. However, while many have found that they cannot afford a down payment on a house, they can open an account at Robinhood for next to nothing.
Participating in the financial markets has never been easier. No credit checks, brokers, paperwork, or down payments, just pick up your phone and place a trade. Encouraging this trend, Gen Z has much broader access to a long list of retirement plans thanks to employers and the government. The truth is, when I was that age, there were no government-sponsored retirement plans.
Most credit the arrival of the Covid pandemic for launching Gen Z's love affair with the markets. Trapped at home with a large government paycheck in hand, the meme-stock mania enticed many to take a chance. As the stock prices of companies like GameStop and AMC soared higher daily, social media exploded with stories about finance and investing. Crypto soon joined the party, and it was off to the races as a generation of young Americans hit the buy button.
Of course, over time, the meme craze petered out, but by then Gen Zers realized there is no mystery in the financial markets. Thanks to an ever-increasing knowledge base fueled by an expanding stream of finance, how-to, and new, easier investment products, Gen Z has matured over the past five years.
As more youngsters joined the workforce, they showed little hesitation in opening IRAs, 401 (K)s, or equivalent tax-deferred accounts at their companies. Today, automatic enrollment is even available, as I discussed in a recent column. And investing early is increasingly important to this generation.
One of these new innovations is a personal finance app called Acorns. It is an app that lets you invest your spare change and other funds in diversified portfolios of EFs. According to a report by Acorns, published by the New York Times, 72 percent of Zers aged 18 to 35 believe they'll need to rely entirely on themselves for retirement. More than half of the same group believe Social Security may be gone by the time they are eligible to collect.
One reader's son, Michael, believes 'investing' is the wrong word for many Gen Z participants in the stock market. "Gambling is a far more accurate term," according to him. "Retail investors, (people using apps like Robin Hood) are taking highly leveraged positions that expire within days or months to try and ride 'hyper waves' that are being pushed by young financial influencers and subreddits."
He says that younger traders do not believe that a mere 7-10 percent annualized gain in stocks will result in financial security by the time they retire. Michael feels that the traditional methods of building wealth are inaccessible to most of his age group and views the entire phenomenon as an indictment of our society and a red flag regarding the headspace and hopelessness his generation feels. Many GenZers I talk to echo these sentiments.
As a result, trading by retail investors has grown exponentially over the last 15 years and, on any given day, accounts for more than 25 percent of trading volume. If you count trading in zero date options (ODTE), they represent more than 60 percent of all S&P 500 index options volume. Roughly one-third of 25-year-olds have investment accounts. That is six times the number ten years ago.
I am sure this all sounds like an advertisement for more participation by young readers, but there are a large caveat and warning. Home prices have historically remained strong, though they have declined during periods such as the Financial Crisis of 2008-2009. In most periods, housing and the stock market tend to move together. Have a low level of correlation. It is the turtle, while the stock market represents the hare, and therein lies the problem.
Stocks, on the other hand, can be volatile. Since COVID, this new generation has bought every dip and been rewarded mightily for doing so. At some point, that won't work, if history is any guide. Depending on how deep and long a correction might take, the risk is that Gen Zers panic and sell at the bottom, as so many investors did during the Financial Crisis. That could not only devastate their hard-earned retirement savings but also rock their belief in the market as a vehicle for retirement savings.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
The Retired Investor: Gen Z Facing Hard Times Despite Growing Economy
The college-age generation is grappling with inflation, increasing housing prices, climate change, and now mass corporate layoffs. In a world where geopolitical turmoil is increasing, the ground beneath their feet is shifting. Many believe their future is bleak.
My nephew, Joey, just got married. His wife lives with her parents, and he lives with his. While he makes good money as a pharmacy manager at a national chain drugstore, neither he nor his wife can afford even a down payment on a house in Long Island. They are moving in with the wife's parents. Joey's sister is also married, with two children. They also live with their parents. Welcome to the American dream turned nightmare for almost 70 million young Americans.
The typical age range of Gen Z is 1997 to 2012. They are the demographic cohort succeeding Millennials and preceding Generation Alpha. They are the most racially and ethnically diverse generation in America, with 48 percent being non-white.
Almost all of this generation is highly active on social media. Almost 60 percent are planning to pursue a college education. They are just as likely to identify as Republicans, Democrats, or independents. As such, the present populist upheaval the U.S. is undergoing takes an inordinate toll on them. It may be why 91 percent of Gen Zers report experiencing symptoms of stress and anxiety.
While Wall Street opened the year celebrating the promise of a bright future, thanks to AI. Opinion leaders predict that artificial intelligence, robots, and space, among other technological breakthroughs, will dramatically reshape the way the world works. For college grads, all they see is a no-fire, no-hire labor market where unemployment among workers ages 20 to 24 continues to rise. It is now to 5.3 percent and even worse for those younger than that.
The National Association of Colleges and Employers predict the entry-level hiring crisis will worsen this year, rating job prospects as poor or at best fair. At a recent gathering of employers at the Yale School of Management, 66 percent admitted they planned to cut jobs or freeze hiring.
With an economy that is expected to grow by 3 percent in 2026, one would have expected the opposite reaction, but then you would not be reckoning with the impact of artificial intelligence on the job market. Potential employers are concerned and uncertain about how AI might reshape the workforce over the next few years, and rightfully so.
Most analysts believe that many white-collar positions, especially at the entry level, will be replaced by technological advancement. Underscoring that concern, many corporate giants, including Amazon, UPS, Target, and Google, announced layoffs affecting more than 60,000 jobs. And to many, that is just the tip of the iceberg.
Faced with taking fast-food jobs at minimum wage and lacking work experience in their hoped-for professions, 3 in 5 Gen Z workers are looking elsewhere for a job with some kind of reasonable future. Almost half of these young workers believe the blue-collar jobs may offer better long-term security than corporate work in the technology fields. The top sectors pursued by Gen Z include plumbing, automotive repair, construction, and electrical work.
I happen to agree with that belief, but unfortunately, Gen Z applicants face the same barrier to entry in their white-collar arena — lack of experience. Many job applicants, regardless of industry, are now required to have at least three years of experience and up to five years before being considered.
The lure of six-figure salaries in the blue-collar area is attracting more Gen Zs to vocational schools. However, what many conveniently forget is that earning that kind of take-home pay requires years of experience, a substantial investment in personal tools and equipment, and serious wear and tear on the body.
As I write this, in the next room, a 65-year-old builder I'll call Scott, who is going in for his second knee replacement next month, is building another room in our condo. Assisting him is a young Gen Zer. There is a constant stream of chatter as Scott talks through his drywalling process. His helper listens intently. They seem eager to learn and ask questions as they work. He did the same when he placed the struts and erected the wall.
For several years, Scott has been involved in a local high school program that teaches vocational school grads his business, while they gain on-the-job experience and a paycheck. Scott and others like him are providing a solution one day at a time. He is one answer to the dilemma facing this struggling generation. This country needs more Scotts to hire and teach a young workforce in need.
Next week, I will highlight one area where many Gen Xers have found an alternative to home ownership. It holds risks but doesn't cost an arm and a leg to get involved.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
The Retired Investor: Social Security Recipients Get a Raise and a Tax Deduction
For elderly Americans suffering through this affordability crisis, every little bit helps. Inflation and tariffs have made everything more expensive, so a boost to your Social Security monthly checks is welcome, but it's no cure for what ails us.
Given that inflation is "officially" hovering around 3 percent per year, a 2.8 percent boost in cost-of-living adjustment (COLA) for 2026 is good news. This follows a 2.5 percent increase in 2025. The Social Security Administration estimates that the average retirement benefit will jump by $56 a month, from $2,015 to $2,071, starting this month.
From my point of view (and I am sure yours), this raise will in no way cover the spike in consumer prices we are feeling. But before you can even count the money, remember that the standard monthly premium for Medicare Part B is going to hit you with a 9.7 percent increase. That means you need to subtract this additional $17.90 from the COLA benefit, so the cost to cover doctor visits and other outpatient care will climb in January from $185 to $202.90.
What could help retirees even more will be the 2026 federal senior "bonus" deduction. For the coming year (returns filed in 2027), seniors aged 65 and older can claim a new but temporary tax break. The deduction you can claim for individual filers is up to $6,000 and $12,000 for married couples filing jointly. However, there are income limits on this deduction.
For a married couple, your Modified Adjusted Gross Income can be no higher than $150,000; for single filers, $75,000. If you exceed those levels, there is a phase-out scheme in which benefits are reduced until an Individual earns $175,000 and $250,000 for couples. These benefits can be claimed whether you itemize or take the standard deduction on your taxes.
In addition to the new $6,000 bonus, standard deduction amounts have also increased for 2026. What that means is that if you are filing separately, you can deduct $16,100 from your taxes, up from $15,759 in 2025. For married couples filing jointly, the new amount is $32,200. There is also an additional senior deduction for anyone over 65. If you file as a single, singles receive an extra $2,50, while married taxpayers or surviving spouses receive $1,650 each.
As an example, a married couple over 65 taking the standard deduction could potentially shield up to $47,500 from federal income tax ($32,200 standard deduction plus $3,300 additional senior deduction plus $12,000 from the "bonus" payment.)
The affordability crisis has affected seniors in many ways. Over one-third of seniors 65 and older were struggling with housing affordability. Over 12 million households were paying more than 30 percent of their income on housing, according to a Harvard University joint study.
The bottom 20 percent of Americans aged 60 and older have no assets, and many of them are in debt. Almost half have an average income below what they need to cover basic needs. Failing health is a constant fear for 60 percent of all older adults. Most cannot afford two years of in-home, long-term services and support. Over 80 percent do not have the resources to pay for long-term care or be able to weather financial emergencies.
The affordability gap has just gotten worse. And as we enter 2026, 22 million Americans, many of them seniors, especially early retirees who are not yet eligible for Medicare, are facing the end of the enhanced premium subsidies under the Affordable Care Act. Some face a doubling of health-care coverage costs as a result.
All in all, most seniors are facing dire straits in this country. Legislators seem to be oblivious to their predicament. Even their scant remedies are temporary at best, like the "bonus" credit to Social Security that expires in 2028. The majority in Congress wants to get rid of Obamacare but has no alternative to the out-of-control costs of our failing health system.
They say we can’t afford Social Security or Medicare but are at a loss for a workable alternative. Will anything change in 2026? I doubt it.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
