Americans are pulling cash from their retirement savings to pay bills
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Medical expenses were one of the top reasons more US workers were taking hardship withdrawals in the last quarter.
PHOTO: AFP
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NEW YORK – Americans are increasingly tapping their retirement savings to cover housing and medical bills amid higher cost-of-living pressures, according to data released on Nov 20 from Fidelity Investments.
Some 2.3 per cent of workers took a hardship withdrawal in the last quarter, up from 1.8 per cent a year earlier, the data showed. The top two reasons given for the uptick were to avoid foreclosure for home owners or eviction for renters, and for medical expenses.
Americans outside the wealthiest quintile have run out of extra savings generated early in the Covid-19 pandemic and now have less cash on hand than they did when the pandemic began, according to the latest Federal Reserve study of household finances.
In the third quarter, 2.8 per cent of 401(k) retirement account participants took a loan against their account, up from 2.4 per cent in the third quarter of 2022, Fidelity found. Overall, about one in six workers, or 17.6 per cent, had an outstanding loan. This was up from 17.2 per cent in the last quarter and 16.8 per cent in the third quarter of 2022.
Fidelity conducted the quarterly analysis by reviewing the savings behaviour and account balances of more than 45 million retirement accounts.
Loans taken against 401(k) savings generally must be paid back over as long as five years with interest. However, some workers have been taking what is known as an in-service withdrawal, where employers allow withdrawals that include taxes and penalties but are not required to be paid back.
In the last quarter, 3.2 per cent of participants took an in-service withdrawal, up half a percentage point from a year ago, according to the Fidelity study.
Overall, the average retirement account balance decreased slightly from the previous quarter. The average 401(k) balance was US$107,700 (S$144,000), down 4 per cent from the second quarter. Over the past five years, the average 401(k) balance was essentially unchanged. BLOOMBERG
