A series of bad economic numbers over the last week show the economy is slowing down.
Food costs remain high, credit card debt and delinquencies are still up, and financial analysts say the pace of more U.S. workers withdrawing money form their 401k savings account continue to hit record highs.
In 2023, the Vanguard Group said out of 5 million accounts they follow, 3.6% of workers participating in employer-sponsored 401(k) plans made a so-called “hardship” program. That number was up from 2.8% in 2022. It’s the highest-level Vanguard has seen since 2004. However, financial analysts expect that number to rise in 2024.
“We’re seeing a loss of full-time jobs, more individuals getting a second job, families still dealing with higher-than-normal inflation, maxing out their credit cards and when they have nowhere else to go to pay for the daily essentials like food and rent, they start taking money out of the savings,” said Florida Daily financial analyst Steve Beaman.
Around 40% of individuals who took money out of their 401(k) did it to ward off a foreclosure. That number in 2022 was at 36% a year earlier.
Beaman says the Internal Revenue Service (IRS) allows no penalties from withdrawing money from 401k’s when it includes $10,000 for first-time homebuyers, total and permanent disability, and unreimbursed medical expenses above 10% of adjusted gross income. But Beaman points out that’s not what we are seeing.
“It’s people burning through their savings, credit cards, and now dipping into their retirement just to survive,” said Beaman.
Things are even worse for younger workers. The National Institute on Retirement Security says 40% of Gen Xers have zero dollars saved for retirement. That group is made up of people born between 1965 to 1980.
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