More workers are taking 401(k) withdrawals to cover emergencies

More people are making hardship withdrawals from their 401(k) accounts, raiding retirement funds to cover emergency medical expenses or to avoid losing a home.

Hardship withdrawals from Fidelity Investments 401(k) accounts have tripled in five years, according to a report from the investment firm. The share of plan participants withdrawing money rose from 2.1% in 2018 to 6.9% in 2023.

It s a big problem, and it s a growing problem, said Kirsten Hunter Peterson, vice president of thought leadership at Fidelity.

Vanguard reports that hardship withdrawals have doubled in a four-year span, from a monthly rate of 2.1 transactions per 1,000 participants in 2018 to 4.3 in 2022.

Americans who tap retirement money to cover an urgent expense often act out of desperation, investment experts say. They may lack emergency savings and live on too tight a budget to risk taking out a loan.

What we know is that people will dip into their 401(k) when they don t have any other savings tool available to them, Peterson said.

via www.usatoday.com

This is a bad sign. You should touch your retirement fund only when you are about to die, if then.