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40% of Americans Tap 401(K) to Prevent Foreclosure in Record Surge

retirement savings withdrawals

A troubling number of Americans were forced to raid their retirement savings last year to cope with mounting financial strains, new data reveals. According to figures from Vanguard Group, one of the largest retirement plan providers in the U.S., 3.6% of participants took hardship withdrawals from their 401(k) accounts in 2023, marking a record high for the second consecutive year.

With Vanguard administering nearly 5 million retirement accounts, this means approximately 180,000 of their customers had to dip into their nest eggs last year alone. The spike in early 401(k) withdrawals underscores the severe economic pressures faced by American households grappling with soaring costs for essentials like groceries, gas, and housing.

Hardship withdrawals from 401(k)s and traditional IRAs come with significant consequences, including income taxes and often a 10% penalty for those under 59½ years old. Yet, an alarming 40% of those who took money out did so to avoid foreclosure, up from 36% the previous year, according to the Wall Street Journal’s analysis of Vanguard data.

“These figures are a sobering reminder of the financial struggles many Americans are confronting,” said Sarah Holden, senior director of retirement and investor research at the Investment Company Institute. “Raiding retirement savings should be an absolute last resort, as it can severely compromise one’s long-term financial security.”

The trend coincides with a separate study showing a 10% month-over-month increase in home foreclosure filings across the U.S. in January, as escalating interest rates and costs take a toll on homeowners.

While the data paints a concerning picture, there are some bright spots. Vanguard reported that the average 401(k) balance rose by 19% last year, thanks largely to a strong stock market performance. However, experts caution that this increase may be fleeting if economic conditions continue to deteriorate.

Financial advisors stress the importance of exhausting all other options before tapping into retirement accounts prematurely. “Taking out a 401(k) loan, which allows you to pay the money back over time, is generally preferable to an outright withdrawal,” said certified financial planner Marissa Reale. “But consumers should first explore alternatives like 0% APR credit cards or home equity loans, if possible.”

As the economic landscape remains precarious, the surge in 401(k) hardship withdrawals serves as a stark reminder of the profound financial distress afflicting many American families. Policymakers and industry leaders must prioritize measures to alleviate these pressures and safeguard the long-term retirement security of millions of households.


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