A record-breaking number of Americans are making emergency withdrawals from their 401(k) retirement plans in order to cover a financial hardship amid the ongoing inflation crisis, according to new data from Vanguard Group.
Nearly 3.6% of workers participating in employer-sponsored 401(k) plans made a so-called “hardship” withdrawal in 2023, according to Vanguard, which tracks about 5 million accounts. That marks a major increase from the 2.8% rate recorded in 2022 and the pre-pandemic average of about 2%. It marks the highest level since Vanguard began tracking the data in 2004.
According to earlier (months old) stories.
Fidelity reported that the average IRA, 401k etc.
- from 2018 to 2022, was net flat due mostly to big losses at the outset of COVID (but combined inflation was 23% those years) Link 1 below
- lost 22% in 2022 (and lost 8% more to inflation) Link 2 below
and - lost 4% in 2023 (plus an additional 4.1% to inflation).
Ouch! That totals more than 61% in real dollar losses.
Link 1
Link 2
Link 3
i wonder how many of these people will vote democrat
Couple this with the number of Americans maxing out their credit cards and therein lies the reason that the consumer is still spending! Not sure how much longer this continues?
2 Likes
Is the consumer spending?
Well, yes. Consumer spending growth (includes spending by employers for employee benefits) is right on track with the pre-COVID norm.
.
.
.
.
.
However
Americans used to fund those purchases from their income.
Now we fund them by drawing down savings, borrowing from our 401ks and running up our credit cards. These are not just metaphors anymore. The math does not lie and that really is what is happening.
In late 2021, Americans stopped adding money to personal savings
and started taking money out.
(Note where the green switches to red, below)
By last September, the lower 80% of US household had depleted their pandemic era “excess savings.”
2 Likes
Put another way
According to a study by the San Fran Federal Reserve 80% of American households are have less liquid savings than they did before the pandemic. (Headline below is a little over-scary, but true.)
.
.
Yet we continue to spend more than we did pre-pandemic. completely in line with pre-pandemic growth trends.
At some point the bank, IRA, and 401k are empty and the credit cards are maxed out… The crash is a lagging indicator of these things happening.
3 Likes
The FOXBusiness article after which this thread is named (link re-posted below)
notes that IRA/401k hardship withdraws have hit another new record . . . and blames inflation.
Several other business news sites have also noted the new record . . . and also blamed inflation.
That’s not a bad thing to blame. That seems like a real possibility, but other things might also be to blame, such as
- The economy has recently lost nearly 2 million full-time jobs, most of that in just the past few months.
- Credit card debt and consumer loans are experience their longest steepest increase on record
- People who used to sell their houses to buy down or seek a new job now l no longer feel they can.
- Home equity loans are no longer available the way the were just recently, rates are higher and qualifying is tough.
- etc.
Yes when 401ks, credit cards etc. get maxed out a downturn will likely follow.
I am just noting that the article might have been incorrect to blame inflation to the exclusion of all other possibilities.
Just the way they like it. 
2 Likes
There is no doubt a driving force among lefty-Keynesian economists to grow "the economy (which they measure as spending) by encouraging spending instead of saving. (That’s is not some conspiracy theory, it is their stated, outright academic position.)
At best, it is a tautology.
“We define the economy as spending, (saving does not count), and then we try to encourage people, and sometimes force people, to spend instead of save.”
3 Likes
Each of these factors is cyclic. Unfortunately they appear to be in a moment of random correlation, which makes bad things worse. Overstimulation of the economy is the most likely leading contributor, with the others being made worse by the inflationary pressure. I think hospitality, durable goods, autos, then housing will be the order of the dominos to fall.
The order of the dominos is anyone’s guess, but the first part of the post is absolutely true.
Previously, a one-unit increase in government spending has always caused, at least in the short term, more than one unit of total spending. (It is wrong, in my opinion, to define the economy by this one single symptom. But people often do. People often use GDP as a synonym for the economy.)
- In 1975 a one dollar increase in gov’t spending led to 3 dollars in GDP growth.
(3-to-1) - In the 1980s, that ratio was 2.5-to-1
- Throughout the 1990s that ratio was roughly 2-to-1
- Today, that relationship is less than 1-to-1.
I believe this is a very profound change. It shows that govt spending does not grow the economy, not by any measure, & not even in the short term.
We poor boss.
I have not found the original Vanguard report, but according to WSJ
A record share of 401(k) account holders took early withdrawals from their accounts last year for financial emergencies, according to internal data from Vanguard Group. Overall, 3.6% of its plan participants did so last year, up from 2.8% in 2022 and a prepandemic average of about 2%. . . .
Nearly 40% of those who took a hardship distribution last year did so to avoid foreclosure . . .
Golden handcuffs. Normally people who own a home and fall on hard times, or want to move to save their career or to advance their career , or want to sell-down and retire etc. have a number of options.
Right now, many are living in a house that is much bigger and nicer than they could normally afford. They bought it at a time when interest rates were artificially low. Now that rates have returned to the bottom end of normal if they sell their house for job or retirement reasons they have to go back to living like normal people in normal times. (Gasp!)
The problem with government spending is it is often a transfer, rather than an exchange. Then have a bunch of it as tax breaks on specific purchases, that are only used by the top 25% of income earners, and the macro numbers looks rosy, but the outcome for the middle and lower wage earners an families doesn’t reflect that macro number.
1 Like
