Report: Americans pulling out of 401(k) plans due to financial distress.

A growing number of ⁢Americans are pulling money out of their 401(k) accounts because of financial hardship, ⁣as revealed‌ by ‍new research from Bank⁤ of America (BofA).

The financial institution released⁢ the results of its second-quarter Participant Pulse report, an analysis of customers’ employee benefits programs that include more than four million ⁣individuals.

In​ the April–June period, the number of individuals who completed a hardship⁢ withdrawal from their investment account⁢ totaled 15,950. This⁤ was up ​12 percent from the first quarter and up 36​ percent from the ​same time a year ‌ago.

Individuals who borrowed from their ⁣workplace plan in the previous quarter totaled 2.5 percent, up⁢ 1.9 percent from the⁢ first ​quarter. This was⁤ led ‍by Generation ‍Z (22.8 ‍percent) and millennials⁢ (14.5 percent). ⁤Average​ loans dipped nearly 2 percent year over year to $8,550. Moreover, close to 14 percent‍ of participants had at least one ​loan ‌in default in the second quarter, ​down from ⁣14.3 percent in the ​January-to-March span.

The BofA ​study discovered that the ⁣average contribution quarterly rate was unchanged at‌ 6.5 percent. The typical contribution totaled $1,460, down 23 percent from the first quarter and roughly in line with last year’s average. Contributions were ⁤led by Generation ⁢Z (19.3​ percent), millennials (11 percent), Generation X (9.7 percent), and baby boomers (7.8 percent).

The generational trend makes sense, too, considering that Generation Z workers are frightened that they will be unable⁤ to afford⁣ retirement.

According to‍ BlackRock’s 2023 Read on Retirement report, 31 percent of the youngest​ generation of workers ‌do not believe they will save enough to retire.

A recentCredit karma survey discovered that 36‍ percent of GenZers ⁢expect to retire by 50, and 66 percent plan to ​retire‌ by 60. However, three-quarters‍ of so-called Zoomers do not possess a 401(k) ​retirement account, ⁢and half still need a savings account. This is ⁣comparable to a recent Bankrate survey that found 31 percent of Generation⁤ Z workers have​ saved nothing for retirement.

“It’s interesting how bullish Gen Z ​is ‌about their retirement plans, especially since so many ⁣have⁢ entered the workforce for the⁤ first time‌ during an unfavorable economic ⁤environment, making it difficult for them to save money,” said Courtney Alev, consumer financial advocate at Credit Karma, in a statement.

Overall,⁢ the BofA learned‌ that⁤ the average 401(k) account balance was $82,300 in June 2023, up ⁤nearly‌ 10 percent from the ⁢end of 2022 balance of $75,050.

“The data⁤ from our report tells two stories—one of balance growth, ‍optimism from younger ​employees and maintaining‍ contributions, contrasted with a trend of increased plan withdrawals,” said Lorna ⁢Sabbia, head of retirement and personal wealth solutions ​at Bank of America, in ‌a statement. “This year,‍ more employees are⁣ understandably prioritizing short-term expenses over⁢ long-term saving. However, it’s critical that employees continue to invest in life’s biggest expense: retirement.”

Feelings of financial wellness slipped, with the average score for employees coming in at​ 56,‌ down from 57 at ⁢year-end.

A Tale⁤ of Two Economies

A treasure ‍trove of data in recent months has painted a mixed portrait of ⁤the U.S. ‌economy.

The labor market ‌remains extremely tight. The July Jobs figures confirmed an unemployment rate of 3.5 percent, annualized average hourly earnings of 4.4 percent, and job openings far above ‌pre-pandemic ⁣levels. Real (inflation-adjusted) wage growth turned positive⁣ in July⁢ for‌ the first time in ‌27 ⁢months, ⁤rising 0.2 ‍percent.

Consumer spending, which⁣ represents ‍two-thirds of the U.S. economy, continues to be robust. Retail sales ⁤rose 0.7 ​percent in​ July, up ‌from 0.3 percent in June. Retail trade also topped⁣ the consensus estimate of 0.4 percent.

At the same time, the⁣ 16 percent cumulative increase in ‍inflation and the 3 percent drop in nominal wages since 2021 have been taking a toll on household‍ finances.

New data from the ⁣Federal Reserve Bank of New York found that total household debt surged to⁤ $17.06​ trillion⁤ in the second quarter. Since the end of 2019,⁤ overall household debt has skyrocketed by nearly $3 ⁢trillion. In addition, the regional central bank’s quarterly report found that credit card debt topped $1 ‌trillion.