14% of Americans Report Tapping Retirement Savings During Crisis
During a time when most Americans are adapting to a “new normal,” they may also be making adjustments to their finances — including to funds they’d normally set aside for retirement. As part of the CARES Act, workers can now borrow a larger portion of their retirement savings (the lower of 100% or $100,000 versus the normal 50% or $50,000 limit). Additionally, the 10% penalty that is typically assessed to those under 59 1/2 who make withdrawals from their accounts is being waived in certain cases. Now it seems that several workers are taking at least partial advantage of these changes and are currently tapping their retirement accounts.
According to a recent Bankrate survey, 14% of Americans have already drawn cash from their retirement accounts during this current crisis. On top of that, another 13% stated that they were considering a withdrawal to temporarily supplement or replace their income. Interestingly, while 50% of those who had recently lost their job reported accessing their retirement funds, 22% of those who are still employed said the same.
In terms of the type of people borrowing from their retirement savings, Bankrate found that this practice was (unsurprisingly) more common among lower-income and younger households. For example 45% of surveyed households making under $30,000 a year had already tapped their retirement accounts or planned to. That compares to 34% of those making between $50,000 and $75,000 a year and 17% of those making more than $80,000 annually who said the same. Meanwhile Millennials and Gen Zers were twice as likely to have already accessed retirement savings for income replacement during this crisis compared to older generations. One-fifth of younger adults surveyed said they’d tapped their savings while only 8% of Gen Xers and 10% of Baby Boomers reported following suit.
Offering insight on the survey findings while also providing some additional stats, Bankrate’s chief financial analyst Greg McBride noted, “In addition to the 1-in-4 working households that hadn’t been contributing to retirement savings before the pandemic, a further 18% are now contributing less toward retirement. The runaway culprit is loss of income, cited nearly twice as often as the next most common reason of keeping more cash on hand.” Regarding those workers tapping their savings as a source of emergency income, he added, “This is most pronounced among younger households, who may miss out on decades of future compounding if forced to turn to their retirement savings during these trying times.”
Ultimately, while there are pros and cons to 401(k) loans or accessing your retirement funds early in general, it shouldn’t come as a surprise that many Americans are finding this move necessary as unemployment reaches record highs. The hope now is that the phased reopenings taking place across the country (to different degrees) will help the economy bounce back. In turn, this would potentially allow workers to replace retirement funds they may have had to access. Regardless, it looks as though the impacts of this crisis are likely to be seen for a generation or more into the future.