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401(K) · Consumer Finance · Hardship Withdrawals · Retirement Savings
A record share of Americans, 2.4% at Fidelity and 2.8% at Vanguard, accessed their 401(k)s for hardship withdrawals last year, marking the highest levels recorded by these firms.
This surge follows a period of elevated inflation and rising interest rates, increasing the cost of living and borrowing. While economic headwinds are a factor, regulatory changes, such as the 2018 amendment allowing employer contributions to be withdrawn and the upcoming Secure 2.0 Act simplifying the process, have also made it easier to tap these funds.
Despite the increase in participants, the average withdrawal amount has decreased from $3,900 in Q1 2021 to $2,200 in Q4 2022, indicating individuals are taking only what's necessary for emergencies like medical care or eviction prevention. Experts generally advise against early withdrawals due to penalties, but acknowledge their necessity in dire situations.
Concurrently, 401(k) loan participation has declined, suggesting a shift in how individuals view their retirement accounts for non-emergency needs.
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