According to a new report by Fidelity, a notable rise has been observed in the percentage of Americans withdrawing funds from their 401(k) accounts to cover necessary expenses, suggesting an increase in financial strain among U.S. consumers. The report highlights that 2.3 percent of U.S. retirement plan participants resorted to hardship withdrawals in the third quarter of 2023, a substantial increase from 1.8 percent in the same period of the previous year. Causes for such withdrawals predominantly included averting possible foreclosure or eviction, and to cover medical costs. There was also a witnessed rise in the proportion of Americans taking out loans from their retirement savings, growing from 2.4 percent to 2.8 percent in the third quarter of 2023.
The report follows a similar revelation by Bank of America (BoA), indicating a significant rise in hardship withdrawals in the third quarter, attributing it to factors such as high inflation and economic conditions. As per a recent survey by Bankrate, 60 percent of employed Americans report their earnings to have not kept pace with increasing household expenses due to inflation over the past 12 months, a rise from 55 percent last year. The job market’s sluggishness since the Federal Reserve’s interest rate hikes aimed to tackle inflation, and inflation’s continued high presence, have reportedly eroded real income increases.
Analysts have also noted the contrast between the GDP and GDI of the U.S. third-quarter economy, the former having grown by 5.2 percent in contrast to the latter’s modest 1.5 percent growth. While inflation remains a looming concern, eroding the wage gains for many, optimism surrounding the state of the economy was negatively impacted. Diminishing confidence in the U.S. economy also coincides with geopolitical complexities in Ukraine and Gaza. To some, inflation fears are resurfacing amid concerns of a potential U.S. economy downswing.
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