A record-setting number of Americans are pulling money from their 401(k) plans to cover emergency expenses, The Wall Street Journal reported Thursday, citing data from major investment manager, Vanguard Group.
The proportion of people who pulled from their 401(k) jumped by about one-third in 2022, to 2.8%, up from 2.1% in 2021 and 2% in the pre-pandemic era, according to the WSJ. Vanguard manages roughly 5 million accounts, so the total number of people making withdrawals climbed from roughly 100,000 to roughly 140,000 in 2022, as people both struggled with financial stress ranging from credit card debt to eviction. (RELATED: What Another Fed Interest Rate Hike Means For You)
The increase may also be in part due to more lenient rules implemented in 2018 that eliminated the necessity of taking a 401(k) loan before a hardship distribution can be issued, the WSJ reported. Borrowers also no longer need to submit evidence of hardship before making a withdrawal, and make some withdrawals penalty-free if they are tied to issues like domestic abuse, terminal illness and federally declared disasters, after Congress eased restrictions in December.
“There’s an understanding that for a lot of people, this is the only pot of money they have,” Rob Austin, director of research at 401(k) provider Alight Solutions LLC, told the WSJ.
Fidelity Investments, the largest 401(k) plan manager in the U.S., saw roughly 716,000 Americans, 2.4% of those it manages, make hardship withdrawals in 2022, a 26% spike from 2021, the WSJ reported. The government’s Thrift Savings Plan saw 217,661 people, roughly 3.2% of its constituents, take hardship distributions in 2022, up 50% from 2021.
Roughly half of those who take hardship withdrawals use the money to prevent eviction or foreclosure, while 15% use it for medical bills and 10% for college tuition, Austin told the WSJ. On average, the typical hardship distribution grew to $7,000 in 2022, up from $5,500 in 2021, the WSJ reported, citing data from Alight.
Vanguard Group did not immediately respond to a Daily Caller News Foundation request for comment.
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