The average 401(k) account balance fell in the third quarter, but is still up double digits from a year ago

By Chicago 3 Min Read

New York CNN –

Given that the S&P 500 index fell 3.7% in the third quarter of this year, it’s no surprise that 401(k) account balances followed suit.

According to new analysis from Fidelity Investments, one of the largest U.S. providers, the average 401(k) balance fell 4% from the second quarter but is still up 11% from a year ago and 27% in the last ten years. of workplace pension plans.

Furthermore, savings rates remained high. Including both their own and employer contributions, 401(k) participants were saving an average of 13.9% of their income, up slightly from a year ago, Fidelity said. Baby boomers who are still in the workforce are the hardest working, with an average of 16.7%.

But the increase in withdrawals and loans suggests some financial stress

However, in the latest quarter, more people withdrew money from their 401(k) plan, indicating financial strain.

Fidelity found that 2.3% of workers agreed withdrawals due to difficulty, up from 1.8% a year ago. Top reasons cited: Avoid foreclosure or eviction; and medical expenses.

Withdrawals from your 401(k) are subject to income tax. And if they are made before age 59 1/2, they may also be subject to a 10% early withdrawal penalty, unless the money is intended to meet an immediate financial need that is considered a “hardship,” such as medical expenses or efforts to avoid losing their home.

Conversely, so-called withdrawals from service – which concern expenses not considered inconvenient and for which a person is willing to pay taxes and penalties – also increased in the third quarter to 3.2%, compared to 2.7% a year does. . They are subject to the 10% early withdrawal penalty if made before age 59½.

Meanwhile, the percentage of participants taking loans from their 401(k)s also increased in the third quarter, rising to 2.8% from 2.4% in the same quarter last year. According to Fidelity, inflation and cost-of-living pressures could explain the increase in lending. Overall, the percentage of 401(k) loans outstanding stood at 17.6% versus 17.2% in the second quarter. The historic low of outstanding loans – 16.6% – was reached in early 2022.

The loans – which in most cases cannot exceed 50% of the accrued balance or $50,000, whichever is less – typically must be repaid with interest within five years, and payments must be made at least quarterly.

Overall, Fidelity said: “The growing use of withdrawals and hardship loans highlights the need to help retirement savers build emergency savings, which Fidelity has found to be the No. 1 savings goal. 1 among employees, after retirement”.

He noted that many major employers are now working with Fidelity to add workplace emergency savings programs as benefits.

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