A new study has found that the average 401(k) balance fell by 4% in the latest fiscal quarter, as experts say the fall was a result of “hardship withdrawals.”
The study from Fidelity Investments reported that the average 401(k) balance plunged from $112,400 in the second quarter to $107,700 in the previous three-month period that ended Sept. 30.
The $5,000 drop comes as the average Individual Retirement Account balance saw a similar drop, falling from $113,800 to $109,600 during the same time, Fidelity reported.
The report highlights that 2.3% of workers took out what the IRS considered a “hardship withdrawal” so that they could pay for large and unexpected payments. That number is up 1.8% compared to a year ago.
When taken out before the age of 59.5 or aren’t used for medical bills, school tuition, or home repairs, withdrawals are subject to a 10% tax on top of being taxable income.
Along with the study came a survey, which found that 80% of Americans cited inflation as the reason for their financial stress.
For those who made a withdrawal, the top reason was to avoid eviction and to pay for medical costs.
“The increasing use of hardship withdrawals and loans underscore the need to help retirement savers develop emergency savings, which Fidelity has found to be the No. 1 savings goal among employees, after retirement,” Fidelity wrote in its report.
In-service withdrawals, which don’t fall under “hardships,” requiring tax and penalty payments, also rose in the third quarter to 3.2%, up from 2.7% last year, the report noted.
The report shows the growing economic stress facing Americans, with 57% of American adults reporting that they would not be able to afford a $1,000 emergency expense if it were to arise.