In President Biden’s America, citizens have withdrew money from their 401(k) plans in order to pay for financial emergencies surging to a record high in 2023. The Wall Street Journal reports that inflation such as rising prices and smaller paychecks have largely contributed to American’s using retirement savings now to pay for essentials.
Investment manager Vanguard Group reported 3.6% of its participants withdrew money from their accounts in 2023 compared to 2.8% in 2022, far above the Covid-19 pandemic average of 2%. The high inflation has caused American’s to use their retirement savings to combat the 18% overall price increases since President Biden was elected in 2021.
It was reported that those who needed to withdraw money from their 401(K) plans, about 40% used the cash to prevent foreclosure on property, compared to 36% only a year ago. Approximately 75% of those who withdrew cash from the account needed $5,000 or less.
In October 2023, the average interest rate on a 30-year mortgage in America peaked at 7.9% which is the highest rate to buy a home in 23 years. Because of the massive increase in home prices, many Americans found owning a home to unaffordable and increased the risk of foreclosures. October was also the ninth month in a row where home prices in the United States climbed higher and higher, leading to the highest average home prices in history.
Not only were some Americans desperate to withdraw money from their 401(k) plan for emergency cash, but they would have to pay a penalty if under the age of 59.5 and income tax on the withdrawal.
The average American account balances did rise by 19% throughout 2023 but that barely makes up for the 20% losses those same accounts felt in 2022 during the market decline.
Inflation is projected to stay elevated at 3.1% year-over-year, which is much higher than the Federal Reserve’s ideal target of 2%.