Fidelity 401(k) savings rates are solid and average 401(k) balances are still higher than a year ago, but withdrawals and loans for needy individuals are also increasing.
Considering the S&P 500 fell 3.7% in the third quarter of this year, it’s no surprise that 401(k) account balances followed suit.
The average 401(k) balance fell 4% compared to the second quarter, but was still up 11% year-over-year and over the past 10 years, according to a new analysis from Fidelity Investments, one of the largest providers in the United States. It has increased by 27%. A workplace retirement benefit system.
Additionally, savings rates remained strong. Including their own and employer contributions, 401(k) participants save an average of 13.9% of their income, up slightly from a year ago, according to Fidelity. Baby boomers who are still in the labor force disrobed the most, with an average of 16.7%.
But an increase in withdrawals and loans suggests some degree of financial stress.
Nevertheless, more people withdrew money from their 401(k) plans last quarter, indicating financial strain.
According to Fidelity research, 2.3% of workers difficult withdrawal, up from 1.8% a year ago. The most frequently cited reasons were: To avoid foreclosure or eviction. And medical expenses.
Withdrawals from one’s 401(k) are subject to income tax. Additionally, withdrawals made before age 59 1/2 are subject to a 10% penalty unless the funds are intended to meet immediate financial needs that are considered “hardship,” such as medical expenses. You may be subject to early withdrawal penalties. Avoid losing your home.
By contrast, so-called in-service withdrawals (expenses that are not considered a hardship and for which you are willing to pay taxes and penalties) also rose to 3.2% in the third quarter, up from 2.7% a year earlier. . If taken before age 59 1/2, there is a 10% early withdrawal penalty.
On the other hand, the percentage of participants was take out a loan The share from 401(k) also increased in the third quarter, increasing to 2.8% from 2.4% in the year-ago period. Inflation and cost-of-living pressures may be contributing to the increase in lending, according to Fidelity. Overall, 401(k) loans accounted for 17.6% of total balances, compared to 17.2% in the second quarter. Loan balances reached an all-time low of 16.6% in early 2022.
Loans, which in most cases cannot exceed the lesser of 50% of the confirmed balance or $50,000, must be repaid with interest and paid at least quarterly within five years. not.
Overall, Fidelity says, “The increased use of withdrawals and loans by people in need highlights the need to help retirement savers with emergency savings. “We recognize this as the No. 1 retirement savings goal among employees.”
The report noted that many large employers are now working with Fidelity to add workplace emergency savings programs as benefits.