As Americans grapple with the persistence of historic inflation, people increasingly turn to their retirement accounts — mostly 401K accounts — to make ends meet.
According to a survey conducted by Bank of America, the rates of both borrowing from 401K accounts and so-called “hardship withdrawals” have increased notably in the second quarter of 2023. The rate of plan participants borrowing from their accounts has increased from 1.9% to 2.5%, while hardship withdrawals inched up commensurately from 0.4% to 0.52% from Q4 2022.
“These key metrics, in part, signal participant confidence and sentiment,” BofA said alongside the results. “Notably, more participants took loans and hardship distributions compared to last quarter, and compared to this time last year, although average amounts taken per participant were fairly consistent. At the same time, average contribution amounts declined compared to last quarter.”
Hardship withdrawals saw the starkest spike. In Q2, 15,950 participants took such a withdrawal, a 12% increase over totals seen in Q1 and a 36% increase year over year. The average hardship amount in Q2 stood at $5,050, relatively flat compared to Q1 but slightly reduced from the $5,400 figure seen in Q2 2022.
Still, there were also positive developments. The number of participants with a loan in default decreased, and plan contributions continue to inch upward. Health savings contributions from such accounts also increased in Q2.
Average account balances have also risen, from $75,050 at the end of 2022 to $82,300 at the end of Q2 2023. In Q2, more participants increased their plan contribution rates, with participants seeing a 10.2% increase versus a 2.2% decrease. This was primarily led by members of the millennial generation and Generation Z.
The report is sourced from BofA’s internal monitoring of its retirement plan participants’ behavior in its recordkeeping of clients’ employee benefits programs, according to the company. This comprises more than four million total participants with positive account balances as of the end of June, 2023.