The pandemic has not only affected our health but also our finances as a record-breaking number of Americans are making emergency withdrawals from their 401(k) retirement plans
Key Takeaways:
- 2.8% of workers participated in employer-sponsored 401(k) plans made a “hardship” withdrawal in 2022.
- The high number of withdrawals is “evidence that some families may be feeling the pinch and drawing on their 401(k) balances to relieve that financial stress.”
- Inflation turned higher in 2023 with rising shelter, gas, and fuel prices affecting consumers.
- The consumer price index rose 0.5% in January with an annual gain of 6.4%.
- Excluding volatile food and energy, core CPI increased 0.4% monthly and 5.6% from a year ago.
The economy has taken a hit due to the pandemic and its aftermath. As the country struggles to recover, it appears that finances have taken a toll on the American people. A record-breaking number of Americans are making emergency withdrawals from their 401(k) retirement plans in order to cover a financial emergency as high inflation rages, according to new data from Vanguard Group.
About 2.8% of workers participating in employer-sponsored 401(k) plans made a so-called “hardship” withdrawal in 2022, according to data from Vanguard, which tracks about 5 million accounts. This marks a major increase from the 2% rate recorded before the pandemic began and is also up from the 2.1% reading in 2021. This high number of withdrawals is “evidence that some families may be feeling the pinch and drawing on their 401(k) balances to relieve that financial stress,” says Fiona Greig, Global Head of Investor Research and Policy at Vanguard.
Hardship withdrawals allow workers to tap into their 401(k) for an “immediate and heavy financial need.” Inflation has turned higher to start 2023, as rising shelter, gas, and fuel prices have taken their toll on consumers. The consumer price index, which measures a broad basket of common goods and services, rose 0.5% in January, which translated to an annual gain of 6.4%. Excluding volatile food and energy, core CPI increased 0.4% monthly and 5.6% from a year ago.
It is clear that the pandemic has affected the economy and the finances of the American people. The high number of hardship withdrawals from 401(k) plans is a clear indication of the financial stress that many families are facing.
Q: What is a hardship withdrawal?
A: Hardship withdrawals allow workers to tap into their 401(k) for an “immediate and heavy financial need.”
Q: What is the current rate of hardship withdrawals from 401(k) plans?
A: The current rate of hardship withdrawals from 401(k) plans is 2.8%.
Q: How does the pandemic affect the rate of hardship withdrawals from 401(k) plans?
A: The pandemic has increased the rate of hardship withdrawals from 401(k) plans as families are feeling the financial pinch and are using their 401(k) balances to relieve that financial stress.