Americans are dipping into their 401(k) plans at an alarming rate

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Today we’re spotlighting data from Bank of America that shows Americans are increasingly pulling money out of their retirement accounts as they face financial distress.??

WHAT’S HAPPENING:?

• The number of those who made a hardship withdrawal during the second quarter marched higher from the first three months of the year to nearly 16,000 – an increase of 36% from the same time last year.
• Bank of America’s numbers come from clients’ employee benefits programs, with more than 4 million plan participants.
• The report also shows that a greater percentage of participants borrowed from their workplace retirement plans since the first quarter, and average contributions trailed off as well.
• There is some positive news: Overall employee contributions held steady for the first half of the year, and a greater share of participants upped their contribution rate than decreased it, according to the data.?

WHY:

• “This year, more employees are understandably prioritizing short-term expenses over long-term saving,” Lorna Sabbia, Bank of America’s head of retirement and personal wealth solutions says.
• While the labor market remains strong, the economy is growing , and consumers are spending , two years of persistently high inflation have taken a toll on household finances.
• “The data from our report tells two stories – one of balance growth, optimism from younger employees and maintaining contributions, contrasted with a trend of increased plan withdrawals,” Sabbia says.

BIG PICTURE:

• As inflation bites, Americans are turning to plastic. Data released today by the Federal Reserve Bank of New York shows credit card debt levels are soaring, surpassing $1 trillion for the first time.
• Overall household debt has spiked $2.9 trillion since the end of 2019, before the pandemic.
• In a Gallup survey in May , just 43% of nonretired American adults said they thought they'd have enough money to live comfortably when they retired — the lowest level since 2012.

Has financial hardship forced you to dip into your 401(k)? Or have you been able to increase your retirement plan contributions recently? Share your stories in the comments.?

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