That’s according to Fidelity Investments’ third quarter analysis of savings account balances for more than 45 million IRA, 401(k), and 403(b) retirement accounts.
It also underscores how many people’s retirement accounts have also become their emergency savings fund when unexpected costs arise.
Read more: How much money should I have in an emergency savings account?
“Juggling short-term expenses is a major challenge for many individuals,” Michael Shamrell, vice president of thought leadership for Fidelity Workplace Investing, told Yahoo Finance.
From July through September, 2.3% of workers withdrew funds from their accounts for hardship, up from 1.8% during the same time last year. An additional 3.2% of participants took an in-service withdrawal — if their plan permitted it — up from 2.7% from a year ago. For in-service raids, no hardship was required as a motive.
At the same time, 2.8% of participants took out a loan from their 401(k), which is on par from the previous quarter but up from 2.4% in the third quarter of last year. The percentage of workers with an outstanding loan has increased slightly to 17.6%, up from 17.2% last quarter and 16.8% a year ago.
The top reasons behind this uptick were avoiding foreclosure or an eviction and medical expenses, according to the report.
Higher prices have spurred a steady, nagging problem for many Americans. Fidelity found that 4 in 5 Americans say inflation and the cost of living are causing stress, with 57% unable to afford even a $1,000 emergency expense, according to the report.
The number of withdrawals and loans from retirement accounts, however, “still represents a very small percentage of plan participants overall,” Shamrell said. “What this does show is the need to help retirement savers secure access to emergency savings options.”
Read more: Retirement planning: A step-by-step guide
This news is in step with a recent survey from Bank of America. In that report, which tracks about 4 million clients’ employee benefit programs, the number of participants taking hardship withdrawals from their 401(k) was up 13% in the third quarter versus the second quarter.
That tallies up to more than 18,000 plan participants, the highest level in the past five quarters since Bank of America started tracking this data, and up 27% compared to the number of withdrawals during the first three months of the year.
Those withdrawals can come with expensive consequences.
A withdrawal from your 401(k) account is typically taxed as ordinary income. Also, you’ll pay a 10% early withdrawal penalty before age 59½, unless you meet one of the IRS exceptions. These include certain medical expenses, qualified tuition payments, and up to $10,000 for first-time homebuyers. Some employer plans, too, will allow a non-hardship withdrawal.
Read more: 401(k) vs. personal loan: Comparing your options
With a loan, it’s not a total loss. You withdraw money from your retirement savings and pay it back to yourself, typically within five years, along with interest. The loan payments and interest go straight back into your account. Depending on what your employer’s plan allows, you can take out as much as 50% of your savings, up to a maximum of $50,000, within a 12-month period.
Be forewarned: If you leave your current employer, you might have to repay your loan in full immediately. When you can’t repay the loan, it’s considered defaulted, and you’ll be on the hook for both taxes and a 10% penalty if you’re under 59½.
The siphoning of savings is concerning, but overall, Americans have not put the kibosh on contributing each paycheck to their 401(k)s and 403(b)s, Fidelity found.
“The data shows that despite the market’s volatility over the past year, participants and employers continued to make regular contributions to 401(k)s,” Shamrell said.
According to the report, savings rates in the third quarter held steady and are up slightly from a year ago. The total savings rate for the third quarter, reflecting a combination of employee and employer 401(k) contributions, was 13.9%. Boomers in the workforce saved at the highest levels (16.7%).
Admittedly, balances did take a ding. No shock here. The S&P 500 fell 3.7% in the third quarter of this year, so it’s not surprising that 401(k) account balances followed a similar path.
That said, while account balances decreased slightly from the previous quarter considering the big picture, they’re up double digits from a year ago. The average IRA balance was $109,600 in the third quarter, a slip of 4% from last quarter but an 8% bump up from a year ago and a 28% increase from a decade ago.
The average 401(k) balance fell to $107,700, down 4% from the second quarter, but an 11% increase from a year ago and a 27% increase from 10 years ago. For 403(b)s, the average account balance decreased to $97,200, down 5% from last quarter, but up 11% from last year and a 46% increase from a decade ago.
One side note: In terms of millionaires, they dropped slightly, with 349,000 401(k) millionaires this quarter compared to 378,000 last quarter.
If you recall, there was a bit of hoopla back in August when Fidelity reported that the number of people with $1 million or more saved in their 401(k) accounts leapt 10% from April to the end of June. And for the first half of the year, the number of folks smashing through that cool million target soared roughly 20%.
Still, even then, those seven-figure accounts had fallen short of their peak, which was 442,000 for 401(k) millionaires at the end of 2021, when the S&P 500 just finished a nearly 27% 12-month run.
Meanwhile, Gen Z investors, born between 1997-2012, are stepping it up in their retirement savings, with a 63% increase in IRA accounts year over year and overall dollar contributions increasing 51%. One additional bit of encouraging news. There was a 69% increase for women in this age bracket during the third quarter, according to the data.
The balance for Gen Z workers who have been in their 401(k) plan for five years reached $29,100 in this period. “It’s impressive to see this young generation be so committed to starting their journey to retirement savings right out of the gate,” Shamrell said.
Kerry Hannon is a Senior Reporter and Columnist at Yahoo Finance. She is a workplace futurist, a career and retirement strategist, and the author of 14 books, including “In Control at 50+: How to Succeed in The New World of Work” and “Never Too Old To Get Rich.” Follow her on Twitter @kerryhannon.
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