401K Hardship Withdrawals Up

Americans are yanking money out of their retirement savings to cover bills

In a concerning economic trend, recent data from Fidelity reveals that an increasing number of Americans are resorting to emergency withdrawals from their 401(k) retirement plans. This shift, driven by the need to cover everyday expenses amid persistent high inflation, is a stark indicator of the financial strain faced by many.

During July to September 2023, about 2.3% of workers with employer-sponsored 401(k) plans made “hardship” withdrawals, a notable rise from 1.8% in the same period last year. These withdrawals, often subject to income tax and potential penalties, underscore the desperate measures some are taking to manage immediate financial needs, even at the cost of their future security.

The primary reasons for these withdrawals include avoiding eviction or foreclosure and medical expenses. This trend is part of a broader picture of economic distress, as Americans increasingly lean on savings and accumulate credit card debt to meet basic needs, with credit card debt reaching alarming levels.