“30% of workers dipped into retirement funds during 2020.” (Forbes, Janurary 6, 2021)
Since the 2008 Financial Crisis, more people have been raiding their 401(k)s than ever before, but not for retirement. In 2013, the Los Angeles Times reported on a HelloWallet study showing that one in four Americans were borrowing from retirement accounts to pay bills.
Bloomberg News noted the findings of a Wells Fargo study showing that workers were increasingly tapping their 401(k) retirement accounts. According to the report, people in their 50s were the most likely to borrow against their retirement savings. More than $70 billion was being withdrawn annually for mortgage payments, college tuition, even credit cards. (And that was before the pandemic.)
Not surprisingly, this trend was accelerated by the events of 2020. A national survey conducted by Kiplinger’s magazine and Personal Capital in November 2020 found that people have withdrawn or borrowed significant sums from retirement accounts. Thirty-two percent (32%) of respondents said they withdrew $75,000 or more from a retirement account, while 58% took loans borrowed between $50,000 and $100,000. Additionally, more than a third (35%) said they now plan to work longer due to the financial impact of the pandemic. (View detailed survey findings here.)
“The past year rocked the confidence of most Americans saving for retirement,” said Mark Solheim, Editor of Kiplinger’s. “With many people dipping into their retirement savings or planning to work longer, 2020 will have a lasting impact for years to come.”
A Symptom of Bigger Problems.
While noted as an alarming problem by financial experts, the rampant borrowing from retirement accounts is actually a symptom of two larger problems. The first is plain enough: American’s haven’t saved enough.
The second problem may be less obvious, but no less critical to understand and correct: Many people lack financial flexibility—including (and perhaps even especially) those who HAVE saved diligently.
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