The percentage of workers stealing from their future selves remains at an all-time high.
37 percent of workers have taken out a loan, early withdrawal, and/or hardship withdrawal from a 401(k) or similar plan or IRA, according to reconnaissance Released Thursday by the nonprofit Transamerica Center for Retirement Studies (TCRS) in collaboration with the Transamerica Institute. This matches the 2022 level, which is also the highest level in the poll’s history.
These withdrawals underscore why many workers are pessimistic about their retirement as they grapple with shortages of emergency funds and extended family budgets that have forced them to cash in on their nest egg. This practice could become more widespread as new rules make it easier to do so.
“I am deeply concerned about the fragility of retirement security for many workers,” Catherine CollinsonCEO and President of the Transamerica Institute and TCRS, told Yahoo Finance.
The pandemic and the turbulent economy of the past year combined with high inflation and tumbling stock markets have affected worker hiring, financing, and retirement preparations. Without additional support from policymakers and employers, it will be extremely difficult for many workers to recover.”
Need money now
The survey — of 5,725 workers at a for-profit company between November 8 and December 13, 2022 — found that 30% had taken out a loan and 21% had taken an early and/or hard withdrawal.
Millennials, Generation X, and Baby Boomers are somewhat more likely to have an early and/or hard quit (28%, 24%, 19%, and 12%, respectively).
The overall results echo other polls about blitzkrieg on the retirement account.
For example, in 2022, 2.8% of 401(k) plan participants had a hard withdrawal, a record high, compared to 2.1% in 2021 and 1.9% in 2018, according to Vanguard’s latest report.
And in the first three months of 2023, the number of plan participants subject to hard withdrawals jumped 33% compared to the same period a year earlier, as workers received an average of $5,100 each, according to the Bank of America report.
The Transamerica survey found that the biggest obstacle for the majority of workers (53%) in retirement savings is crystal clear — debt. However, there is a sharp divide across generations. Millennials, Generation X, and Generation Z are more likely than baby boomers to say this is the problem (58%, 56%, 54%, and 34%, respectively).
Said Paila, CEO of sunny day box, A financial technology company that helps workers create emergency funds.
“So when a financial emergency inevitably strikes, our research shows that one in five people sacrifice retirement security by withdrawing their 401(k) early from withdrawals or loans.”
Other reasons for hardship withdrawals: Payment of certain medical expenses (17%), Payments to prevent eviction from primary residence (16%), Expenses and losses incurred due to a disaster in a federally declared disaster area (15%), Payment of tuition and related educational fees (14%), covering costs related to the purchase of the main residence (13%), expenses for qualified repairs to major residence damages (12%), and burial or funeral expenses (6%).
“With inflation, economic turmoil, and the persistence of the wealth gap, some of the working population simply need access to their money now,” said Steve Parish, associate professor and associate director at American College of Financial Services Retirement Income Center, for Yahoo Finance. “That includes wiretapping their retirement accounts.”
pessimism spread
Of course, these withdrawals have long-term consequences, which may be one reason many workers are concerned.
Four in ten (41%) workers believe that future generations of retirees will be worse off than those who are currently retired, according to a Transamerica survey.
Their biggest retirement concerns: outrunning their savings and investments (39%), Social Security will decline or cease to exist (36%), declining health requiring long-term care (35%), inability to meet their family’s needs (32%), and costs Potential long-term care (31%), the survey also found.
Baby boomers and Generation X are more likely than Millennials and Generation Z to fear exceeding their savings and investments — 49%, 42%, 36%, and 32%, respectively, according to the findings.
Underlying this apparent fear of their money running out is the stark fact that six in 10 Gen Z workers (57%) say they have difficulty making ends meet. Nearly half (48%) of working millennials struggle to make ends meet, along with 42% of Gen Xers and about a quarter (23%) of Boomers.
Most workers (53%) say they simply don’t have enough income to save for retirement, according to the researchers.
More withdrawals to come?
Experts worry that changing the law could prompt more workers to raid those savings earmarked for their golden years.
The SECURE 2.0 Act passed at the end of 2022 created six new ways to access retirement accounts without penalty before age 59, according to Parrish. The aim was to motivate workers to contribute more by making it easy to make use of this money if needed without penalty.
“If workers know that they can get their money back if needed before retirement, the hopeful behavior is that they will contribute more of each paycheck into these accounts. I fear the public will take Congress on these liberalizing provisions, and in and out of their retirement plans,” Parrish said. The current increase in withdrawals and loans may be an indication of the next moves.
“My concern is that people are starting to see these accounts as savings accounts rather than retirement accounts.”
Kerry Hannon is a senior correspondent and columnist for Yahoo Finance. She is a workplace futurist, career and retirement strategist and author of 14 books, including “In Control at 50+: How to Succeed in the New Work Business » and “Don’t get old till you’re rich.” Follow her on Twitter @employee.
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