According to Bank of America, Americans are increasingly addicted to 401(k)s. Getty Images
lots of americans i don’t feel well about your current personal finances, price stays high And officials warn it’s still possible “Multiple” Interest Rates PossibleAnd according to new data, many are turning to retirement savings to make ends meet.
The US economy surprisingly resilience It has increased over the past year despite rising costs of living and aggressive monetary tightening by the Federal Reserve. But while household debt has risen steadily, credit card balances are expected to “rise sharply” above $1 trillion for the first time in the second quarter of this year, with some analysts predicting a sharp drop in consumer spending. warns that it may decline. around the corner.
In a report released Tuesday, Bank of America found that a surprising number of people are withdrawing from 401(k) plans.
This data is taken from the bank’s latest installment. Participant Pulse This report monitors the behavior of more than 4 million participants in employee benefits programs for clients who have records.
According to it, in the second quarter of 2023, the number of participants taking the so-called “” has increased.distribution of difficulties“There has been a surge in 401(k) withdrawals made due to the urgent need for large amounts of funds.
Not only was there a 36% increase compared to the same period last year, but the number of people receiving indigent benefits was also up 12% compared to the previous quarter.
This means that about 16,000 of the study participants were in urgent need of financial assistance in the three months to June.
The average hardship cost in the second quarter was $5,050, according to Bank of America. However, this represents an improvement over the same period last year, which paid an average of $5,400.
Meanwhile, the overall number of people putting money into 401(k) funds also increased, with 2.5% of participants, or 75,000 account holders, taking out loans under their workplace plans.
Between April and June, participants who borrowed cash from their 401(k) increased by about a third compared to the previous three months of the year.
Millennials and Gen Z are saving for retirement
The BofA said Tuesday that its average contribution rate has stabilized at 6.5% of earnings, even as the rate at which 401(k) holders withdraw cash from their accounts has increased.
From April to June, the average 401(k) holder contributed $1,460 to their accounts, bringing the average account balance to $82,300, up nearly 10% from the end of 2022.
Statistics show that participation rates have increased more than they have decreased, with millennial and Gen Z employees leading the increase in contribution rates.
“The data in our report tells two stories: one is rising balances, the other is optimism among younger employees,” said Lorna Sabbia, head of Retirement and Personal Wealth Solutions at Bank of America. It’s the view, the maintenance of contributions, and the trend of increasing plan withdrawals that is contrasted.” statement. “Unsurprisingly, more employees are prioritizing short-term spending over long-term savings this year. ”
Bank of America isn’t the only major 401(k) provider to notice changes in retirement trends over the past year. Widespread economic insecurity.
Investment management firm Vanguard released data late last year that showed retirement savers were pouring more money into their funds, and the withdrawals of needy people were rising across its funds.
According to Vanguard, average retirement account balances will plummet 20% from 2021 to 2022, while Fidelity Investments reported a 401(k) decline last year, with retirement savings taking a hit, largely due to volatile markets. said the number of IRA billionaires had fallen by 30%.
This could be a problem for an economy that depends on private consumption for about two-thirds of its growth.
