Employees Drawing Out Retirement Savings at All-Time High? Here Are the Reasons
The financial well-being of workers and their ability to save for retirement is a growing concern in today's challenging economic landscape. According to a survey conducted by the Transamerica Center for Retirement Studies (TCRS), the share of workers pulling out their retirement savings remains at an all-time high. The survey reveals that 37% of workers have taken a loan, early withdrawal, or hardship withdrawal from their 401(k) or similar plan or IRA. This trend highlights the financial struggles faced by workers and their pessimistic outlook on retirement, per Yahoo!finance. Additionally, recent changes in legislation may further exacerbate the issue, making it easier for individuals to tap into their retirement funds.
Gen Z is more susceptible to early withdrawals
The survey conducted by TCRS found that 30% of workers took a loan, while 21% took an early and/or hardship withdrawal. Generation Z workers are particularly susceptible to early withdrawals, with 28% having taken such a step, followed by millennials (24%), Generation X (19%), and Baby Boomers (12%). These findings align with other surveys that indicate a rising trend in retirement account withdrawals.
The primary obstacle preventing workers from saving for retirement is debt. The survey reveals that 53% of workers cite debt as the main roadblock to saving for retirement. Millennials, Generation X, and Generation Z are more likely to identify debt as an issue compared to Baby Boomers. These findings highlight the financial challenges faced by different generations, ranging from student loan burdens for Gen Z to supporting both children and parents for Gen X.
Reasons for hardship withdrawals
Apart from debt, workers are resorting to hardship withdrawals for various reasons. The survey identified paying for medical expenses (17%), preventing eviction (16%), disaster-related expenses (15%), education costs (14%), purchasing a home (13%), repairing a home (12%), and burial or funeral expenses (6%) as common reasons for accessing retirement funds. The financial impact of inflation, economic disruption, and income inequality has forced a significant portion of the working population to tap into their retirement savings.
Retirement pessimism
The high rate of retirement withdrawals is a cause for concern because of the long-term consequences it entails. Many workers are deeply worried about their retirement prospects. According to the TCRS survey, 41% of workers believe that future generations of retirees will be worse off than the current generation. The survey also reveals their greatest retirement fears: outliving their savings and investments, reduced or nonexistent Social Security benefits, declining health, and long-term care costs, inability to support their family's needs, and rising long-term care expenses. Baby Boomers and Generation X are more likely to fear outliving their savings compared to millennials and Generation Z.
Ongoing financial strains
Behind this pervasive fear of outliving their money lies the stark reality that a significant portion of workers is struggling to make ends meet. The survey indicates that 57% of Generation Z workers and 48% of millennials are having difficulty covering their expenses. This financial strain extends to 42% of Generation X and 23% of Baby Boomers. The lack of sufficient income remains a major obstacle preventing workers from saving for retirement.
Concerns remain for the future
Experts express concerns that recent changes in legislation may further encourage workers to withdraw from their retirement savings. The SECURE 2.0 Act, passed at the end of 2022, introduced six new penalty-free ways to access retirement accounts before the age of 59. The intention was to incentivize workers to contribute more to their retirement accounts by providing easier access to funds if needed. However, experts worry that this could lead to increased withdrawals and undermine retirement security. There is a risk that individuals may begin viewing these accounts as savings rather than specifically designated retirement funds.