More Americans taking loans, hardship withdrawals from retirement savings
The number of Americans taking loans or hardship withdrawals from their 401(k) retirement savings plans continues to rise, according to Fidelity Investments.
New loans from 401(k) accounts have risen – about 11 percent of people with plans have taken loans from them in the last 12 months, up from nine percent one year ago. Those with outstanding loans from their 401(k) plans has also risen two percentage points in the same time, to 22 percent.
“We recognize that for some, taking a loan or hardship withdrawal from their 401(k) may be their only option because it’s their only form of savings,” said James MacDonald, president of workplace investing with Fidelity. “However, we want to make sure that before workers tap their retirement accounts prematurely, they are fully educated about both the penalty that may be incurred and the long-term implications for their retirement.”
As of the second quarter, 2.2 percent of Fidelity’s active participants took a hardship withdrawal, up from two percent one year earlier. Forty-five percent of those who took hardship withdrawals one year ago also took withdrawals from their 401(k) accounts within the last 12 months, the survey says.
Most people that took hardship withdrawals did so to avoid foreclosure or eviction, pay for college or make a down payment on a home, according to the Fidelity report.
Despite the rising loans and hardship withdrawals, savings through 401(k) plans continues to rise – the average 401(k) account balance is now $61,800, a 15 percent increase from one year ago, Fidelity says. The average deferral rate is eight percent.
“The majority of participants continue to make saving through their workplace plans a priority,” MacDonald said.
