Latest news with #hardshipwithdrawal
Yahoo
04-08-2025
- Business
- Yahoo
More people are taking early 401(k) withdrawals: Here's why
401(k) hardship withdrawals hit a record high, with 4.8% of workers taking a withdrawal in 2024, according to the Vanguard Group. Vanguard head of retirement research Kelly Hahn joins Mind Your Money with Allie Canal to discuss the details. Read more: How much should I contribute to my 401(k)? Sign up for the Mind Your Money newsletter. For more information and tools to help you handle your finances, click here. To watch more expert insights and analysis on the latest market action, check out more Mind Your Money here. So, Kelly, we just mentioned that 10% penalty. On the surface, this doesn't sound like a smart move, but are there situations where an early 401k withdrawal actually does make sense? Well, thank you so much for having me on your show today. It's really great to be here. Yes, it does make sense in some cases because emergencies do happen, and sometimes people just need cash and liquidity. When we look in our data as to why people are taking early withdrawals, the top two reasons are avoiding eviction, as well as paying for medical expenses. So what we're really trying to emphasize is the need for having an emergency reserve so that the retirement wealth, or the long-term savings can be safe for the intended use. So would you say that 10% penalty is the biggest downside when it comes to taking money out early, or are there other long-term impacts people might not be thinking about? Yeah, no, that's really great point. I would add two more things. One is taking money out of your 401k means you have to pay taxes on the money that you did not have to pay taxes going into those savings. And more importantly, for me, is the foregone investment gains that people could have had over many decades of long-term compounding. So it really does impact people's retirement wealth at the end of the day. And the study showed nearly 5% of participants took withdrawals this year. What does that tell you about the financial pressures Americans are facing right now? Because, as you were just mentioning, we did we can sometimes see these trends emerge when people get evicted or have some sort of other emergency. Right. The 5% is a slight uptick from what we had seen in recent years. But what's really important to note is that it's still happening to a rather contained group of, small subset of, people. We see in our data that more people than ever are saving towards their retirement in their 401k accounts. Eight out of ten workers that we work with are saving towards their retirement, and they're saving at the highest rate that we've seen, which is 12%. So the uptick in hardship withdrawal, and some of the cash out numbers that we see, are highlighting that our retirement system may not be perfect, but we made a lot of progress to making it work for the broad set of population as we can. And are there any trends you're seeing demographically, or otherwise, when it comes to who is tapping into their 401k early? The people, when they change their jobs, they tend to cash out their entire 401k balance. We see that about one in three workers, when they leave their jobs, they tended to cash it out altogether. And when we look by different demographics, it happened more so with people whose income can be fluctuating. So inconsistent paychecks. So think gig economy workers, as well as hourly workers. They tended to cash out more so than salary workers. But, again, the good news is, when they had an emergency savings of a moderate amount of, let's say, $2,000, they tended to cash out a lot less, and they had better savings behaviors by saving more towards their retirement as well as taking less loans and less hardship withdrawal. So for workers who are facing a cash crunch but want to protect their long-term retirement savings, what other options should they consider first? Well, it's really comes down to financial planning. In order to help protect our long-term assets, like retirement, we really need to get our house in order of having an emergency savings. Thinking about the shocks that we may endure from spending shocks, as well as the income shocks that I just mentioned, people really need to be thinking about the holistic financial um health of our balance sheet. And, finally, for those trying to rebuild their 401k after making a withdrawal, how do you get back on track? It really comes down to saving, and maximizing the employer match to the extent that is possible. But it really comes down to little efforts that we can make towards the long-term goal of being able to retire successfully. Kelly, thanks so much. You can scan the QR code below for more 401k content. Related Videos Social Security, Medicare, retirement savings: Ask Yahoo Finance Why more homebuyers are walking away from contracts Here is how Americans are saving their cash now US Factory Orders Decline by 4.8% Sign in to access your portfolio
Yahoo
06-07-2025
- Business
- Yahoo
4 Reasons People Are Using 401(k)s for Emergencies, According to Vanguard
Vanguard recently released its 2025 report on how America saves. It revealed that a record 4.8% of 401(k) holders took a hardship withdrawal in 2024, up from 1.7% in 2020. Be Aware: Check Out: So why are more Americans raiding their retirement accounts? The report listed the following reasons for hardship withdrawals. Over a third (35%) of account holders who took a hardship withdrawal listed avoiding foreclosure or eviction as their motivation. 'Traditionally, homeowners in financial distress might refinance or tap home equity to stay afloat,' said Josh Richner of FaithWorks Financial. 'But with mortgage rates hovering near 7%, refinance volume has dropped to its lowest level since the mid-1990s. That leaves many turning to the only sizable resource they can access: their retirement savings.' Read Next: At 30%, medical expenses made up the second most common driver of hardship withdrawals last year. It doesn't help that many Americans have little to no emergency savings. A study by GOBankingRates found that half of Americans have $500 or less in savings. Vanguard reported that 16% of hardship withdrawals went to cover a home repair or purchase. Brett Daniel, founder of Daniel Safe Money Retirement Solutions, cautioned homebuyers against raiding their retirement savings. 'While purchasing a home can make a great financial investment, using retirement savings for the down payment or home repairs is risky due to the fees involved on the amount withdrawn from your 401(k).' It also leaves you with less money in financial investments to compound throughout your career and pay for your retirement. Another 14% of hardship withdrawals went to covering tuition costs, and 5% were uncategorized. While some of those withdrawals helped the account holders themselves get degrees and improve their future earnings, some likely went to account holders' children. But most financial experts agree that's a dangerous path, as children have many options to fund their college degree, but retirees have just one: their savings. 'Parents looking to help with tuition should look at 529 college savings plans or Coverdell Education Savings Accounts, rather than draining their own retirement accounts,' Daniel said. Vanguard noted that it is now easier to request a hardship withdrawal, due to a 2019 budget act, which could account for some of the increase. Additionally, another recent law could also help explain the bump in hardship withdrawals from 401(k)s. The Secure 2.0 Act of 2022 required employers to automatically enroll new workers in 401(k) accounts, if available. That led to many lower-income workers having retirement accounts, and for some, it represents their only source of savings. Overall, Vanguard doesn't see much cause for alarm with the heightened hardship withdrawals. The report pointed to these legal changes as significant drivers, taking a sanguine stance on the 4.8% hardship withdrawal rate. More From GOBankingRates Mark Cuban Warns of 'Red Rural Recession' -- 4 States That Could Get Hit Hard 10 Used Cars That Will Last Longer Than an Average New Vehicle 5 Cities You Need To Consider If You're Retiring in 2025 This article originally appeared on 4 Reasons People Are Using 401(k)s for Emergencies, According to Vanguard
RNZ News
23-06-2025
- Business
- RNZ News
KiwiSaver hardship withdrawals applications doubled
One of the organisations vetting KiwiSaver hardship withdrawals has said applications to dip into the retirement fund have more than doubled in the past two years. This comes as some fund managers have expressed concern about social media "how to guides" advising people to go into more debt or fudge their financials so they can crack open the retirement piggy bank early. Inland revenue figures show that in April 2025 hardship withdrawals were up $300 million on the year before. Public Trusts acts as a supervisor for various KiwiSaver schemes and decides which hardship withdrawals are signed off. General Manager of Corporate Trustee Services David Callanan spoke to Lisa Owen. To embed this content on your own webpage, cut and paste the following: See terms of use.
RNZ News
12-06-2025
- Business
- RNZ News
KiwiSaver fund manager slams 'disturbing' social media hacks to falsely access funds
A record number of hardship withdrawals have been taken out from KiwiSaver in the past year. Photo: flickr/jacob edward Videos filled with hacks and tips on how to falsely take claims out of your retirement fund are cropping up across social media, sparking concerns around whether hardship claims are being used for legitimate reasons. A record number of hardship withdrawals have been taken out from KiwiSaver in the past year. A fund manager told Checkpoint there are a multitude of social media videos full of workarounds to help people qualify for hardship withdrawals and effectively game the system. Inland revenue figures show between July 2024 and April 2025, more than $389 million has been taken out of KiwiSaver for financial hardship reasons. That's up from $300 million on the year before. People can access KiwiSaver retirement funds in significant financial hardship, including to pay for food, power or palliative care. In social media videos, people spoke about using their KiwiSaver to make withdrawals for a car, gastric surgery and even a move to Australia. The 'how to guide' videos are littered across social media platforms. In one six-minute TikTok guide, the user explained how to falsely prove you were in hardship. "You need to apply through a loan company and get a decline letter.. once you have that decline letter it lets the application know you looked for funds elsewhere." Another user urged people to ignore the guidelines laid out in the application, encouraging people to create extra expenses to put their finances in the red. "If you come up positive, that's all good, but you need to go and find another quote." "You need to find another expense... get that number into a negative so you have more of an opportunity to get the amount that you want." General Manager for KiwiSaver Fisher Funds David Boyle told Checkpoint the videos spark concern. "Some of that information that I've seen and and heard just then on TikTok is disturbing." Boyle said those who are trying to 'game' the system should think about what they are doing. "It's actually going to be impacting those that really, really need it," Boyle said. "They could be putting a lot more of our transactions into the system that aren't necessarily going to be approved anyway." He said an increase in applications could slow down the process for those in need. "Influencers on TikTok are giving really poor advice and actually advice that is not appropriate, that they could be clogging the system." He said the hardship fund is designed for people who really need it, and should be used in situations where they cannot mitigate essential costs. "They're going to be in a situation where they can't maintain their home or their debt is gonna put them into a position that is gonna put them into a far worse situation." Boyle said it was important to remember that these claims were coming out of people's retirement fund, and taking away from their future investment. Like Inland Revenue, Fisher Funds had also seen an increase in hardship withdrawals. Boyle said it's unclear how much impact the videos were having on the increase. "It's probably fair to say that they are having an impact, but just what size of that impact? It would be very hard to tell." Sign up for Ngā Pitopito Kōrero , a daily newsletter curated by our editors and delivered straight to your inbox every weekday.
