It’s no secret many Americans have struggled with their finances and rising prices over the last few years. However, new data on pension funds show an alarming trend, The Daily Mail reports.
The number of Americans withdrawing from their retirement funds has tripled in the last five years. According to a Fidelity Investments report, in 2018, the percentage of Americans with a 401(K) who withdrew money to pay for financial hardship was around 2.1%.
However, in June, the percentage was 6.9%.
The IRS defines a hardship withdrawal as an emergency removal of funds from a retirement plan that can be made in the event of ‘immediate and heavy financial need,’ such as a job loss or medical emergency.
The percentage of Americans claiming hardship has risen each year since 2018, with the exception of 2020, when during the COVID-19 pandemic
, the CARES Act allowed people to take up to $100,000 out of a retirement plan without incurring the 10% penalty. That year, the percentage of Americans withdrawing from their retirement plans rose to 15.1%.Fidelity advises Americans to build an emergency fund as withdrawing from a retirement fund is both costly and results in a dip in your retirement savings. According to Fidelity, those with emergency funds are more financially confident and have higher credit scores.
Additionally, emergency funds are usually in cash, giving households quick access to money, which keeps them from high-interest alternatives such as payday loans.
Bank of America reported in August that 15,000 of the firm’s 401(K) plan participants made a withdrawal from their accounts in the second quarter
of the year, a 36% increase from the second quarter of 2022. The price of food, housing, and transportation have risen significantly since the pandemic began and have shown little signs of slowing down despite the US economy performing better than expected.RELATED CONTENT: Report: Many Women Unprepared for Retirement