Increasing 401(k) Balances Can Bring Increased Risk
By the second quarter of this year, the number of “401(k) millionaires” rose 2.5% from Q1, marking a record high according to Fidelity. At the same time, retirement savers overall experienced three consecutive quarters of growth — and that’s good news for many investors. However, a Vanguard analysis of its plans also shows a concerning trend:
The percentage of savers who took hardship withdrawals from retirement accounts increased twofold over a three year period, climbing from 1.7% in 2020 to 3.6% in 2023.
Moreover, new rules introduced this year make accessing those funds even easier, allowing participants to withdraw up to $1,000 annually from a qualified retirement plan or
IRA, without penalty, to cover self-defined urgent needs.
Rising 401(k) balances can lead to financial overconfidence for some participants, tempting them to view their retirement account as a quick fix during economic challenges instead of exploring alternative strategies for managing emergency cash flow.
DOWNLOAD TO READ FULL ARTICLE
