Bank of America looked at its 4 million employee retirement savings accounts and found that Americans are making alarming withdrawals from their 401(k)s.
According to Bank of America’s director of retirement and personal wealth solutions, Lorna Sabbia, more workers are choosing short-term needs above long-term saving this year. However, it is essential that workers keep saving for retirement, the largest single bill they will ever face.
Investors taking money out of their 401(k)s are doing so in large sums, with the average hardship withdrawal being $5,050 and the average loan being $8,550.
There was a 36% year-over-year rise to 15,950 persons taking a hardship withdrawal from their 401(k) during the second quarter. And by the end of the second quarter, 2.3% more people than a year ago had taken out a loan against their BofA-managed 401(k)s (that’s 75,000 people).
LendingTree’s chief credit analyst, Matt Schulz, is concerned about the wisdom of taking out a large sum of money from retirement accounts that typically contain just $82,300. You can see why someone might do it in the heat of the moment, but you also know that the opportunity costs are enormous.
The consumer price index (CPI) for July, which will be reported on Thursday, is expected to come in at 3.3%, up from June’s 3%. In addition, UPS drivers have lately benefited from wage increases negotiated by the UPS Teamsters union.
While Hollywood actresses and writers are on strike for salary increases, the United Auto Workers are seeking a 40 percent hike from General Motors over the next four years.
There has been persistently high inflation in the United States for almost two years, and the wage-price spiral is becoming worse. New York Federal Reserve data shows a nearly $3 trillion growth in consumer debt since 2019.
On Tuesday, the New York Fed reported that consumer credit card debt in the United States had reached $1 trillion for the first time.
People can only take on so much heavy debt before they start defaulting in large numbers, according to Schultz. You have a sizable population that is thriving at the moment, but it wouldn’t take much to send them into financial difficulty. Reasons for this may include the need to pay for medical care, losing a job, or starting to repay college loans.