The share of workers stealing their future remains at an all-time high.
Thirty-seven percent of workers have taken out a loan, early withdrawal and/or hardship withdrawal from their 401(k) or similar plan or IRA, according to a survey released Thursday by the Transamerica Center for Retirement Studies (TCRS). ) in collaboration with the Transamerica Institute. This corresponds to the level of 2022, which is also the highest level in the history of the survey.
The withdrawals underscore why many workers have a pessimistic view of their retirement as they grapple with a lack of emergency funds and stretched family budgets that have forced them to dip into their nest eggs. The practice could become even more widespread as new rules make it easier.
“I am deeply concerned about the fragility of retirement security for so many workers,” Catherine Collinson, CEO and president of the Transamerica Institute and TCRS, told Yahoo Finance.
“The pandemic and last year’s turbulent economy with high inflation and falling stock markets impacted workers’ jobs, finances 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 – which questioned 5,725 workers in 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 withdrawal and/or in case of difficulties.
Gen Z is slightly more likely than Millennials, Gen X and Baby Boomers to have taken an early and/or difficult retirement (28%, 24%, 19%, 12%, respectively).
The overall results echo other surveys of retirement account blitzes.
For example, in 2022, 2.8% of 401(k) plan participants made a hardship withdrawal, a record, compared to 2.1% in 2021 and 1.9% in 2018, according to a recent report by Vanguard.
And in the first three months of 2023, the number of plan participants taking hardship withdrawals jumped 33% from the same period a year earlier, with workers withdrawing an average of $5,100 each, according to a report. from Bank of America.
The biggest obstacle to retirement savings for the majority (53%) of workers is crystal clear – debt, according to the Transamerica survey. However, there is a clear break between the generations. Millennials, Gen X and Gen Z are more likely to say this is the problem than Baby Boomers (58%, 56%, 54%, 34%, respectively).
“Lack of savings hurts everyone, whether you’re Gen Z entering the workforce with student loans or Gen X supporting both children and parents,” said Sid Pailla, chief executive. of the Sunny Day Fund, a fintech company that helps workers get established. emergency fund.
“So when a financial emergency inevitably strikes, our research shows that one in five people sacrifice their retirement security by taking early withdrawals or 401(k) loans.”
Other reasons for hardship withdrawals: payment of certain medical expenses (17%), payments to avoid eviction from primary residence (16%), expenses and losses incurred due to a disaster in a government-declared disaster area federal (15%), payment of tuition and related education costs (14%), cover costs related to the purchase of a principal residence (13%), expenses for qualified repairs of damage principal residence (12%), and burial or funeral expenses (6%).
“With inflation, economic disruption and the persistent wealth gap, part of the working population just needs access to their money now,” said Steve Parrish, adjunct professor and co-director of the Center for Retirement Income at the American College of Financial Services. told Yahoo Finance. “That includes tapping into their retirement accounts.”
Generalized pessimism
Of course, these withdrawals have long-term consequences, which may be one reason so many workers are concerned.
Four in ten workers (41%) believe that future generations of retirees will be worse off than those who are currently retired, according to the Transamerica survey.
Their biggest fears in retirement: outliving their savings and investments (39%), social security will be reduced or cease to exist (36%), declining health requiring long-term care (35%), not being able to meet the needs of their family (32%) and the possible costs of long-term care (31%), according to the survey.
Baby boomers and Gen X are more likely than millennials and Gen Z to be worried about outliving their savings and investments — 49%, 42%, 36%, 32%, respectively, according to the results.
Behind this palpable fear of outliving their money lies the harsh reality that nearly six in 10 Gen Z workers (57%) say they are struggling to make ends meet. Nearly half (48%) of millennial workers struggle to make ends meet, along with 42% of Gen Xers and about a quarter (23%) of baby boomers.
Most workers (53%) say they simply don’t have enough income to save for retirement, the researchers found.
More withdrawals to come?
Experts fear a change in the law could lead to more workers plundering those savings meant for their golden years.
The SECURE 2.0 law passed in late 2022 created six new ways to access retirement accounts without penalty before age 59½, according to Parrish. The aim was to motivate workers to contribute more by making it easier to use these funds if needed without penalty.
“If workers know they can get their much-needed money back before retirement, the expected behavior is that they will contribute more on each paycheck to these accounts. in and out of his retirement plans. The current increase in withdrawals and lending may be an indicator of the moves to come,” Parrish said.
“What worries me is that people are starting to see these accounts as savings accounts rather than retirement accounts.”
Kerry Hannon is a senior reporter and columnist at Yahoo Finance. She is a workplace futurist, career and retirement strategist, and the author of 14 books, including “In Control at 50+: How to Succeed in the New Job and “Never too old to get rich.” Follow her on Twitter @kerryhannon.
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