Vanguard Participants’ Account Balances Decreased By 20%

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According to Vanguard, which manages around 5 million retirement plans, the average value of 401(k) and 403(b) funds in 2022 will be $112,572, an almost $30,000 decline from the prior year.

Vanguard Participants’ Account Balances Decreased By 20%. (Photo: IStock)

Vanguard Participants’ Account Balances Decreased Due To Decline In Markets

According to the report, “the average account balances of Vanguard participants have decreased by 20% since year-end 2021, driven primarily by the decline in equity and bond markets over the year.”

In fact, over a quarter of account holders had balances greater than $100,000, while a third had balances less than $10,000. Only 12% of the balances totaled $250k or more.

While rising inflation raged, an increasing proportion of Americans drew funds from their retirement savings to deal with financial difficulties.

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Hardship Withdrawals From 401(k) Plans Are Increasing

According to the research, 2.8% of employees who participated in their companies’ 401(k) plans will have taken a “hardship” withdrawal in 2022. This is a significant improvement from the 2% rate before the epidemic and the 2.1% level in 2021.

Employees who have an “immediate and heavy financial need” may withdraw from their 401(k).

These withdrawals are taxed as income, and if the receiver is under 59 years old and under the age of 12, an early withdrawal penalty of 10% may be levied. Employees may avoid the fee if they can show, through adequate documentation, that the funds are being utilized for a justifiable hardship, such as medical expenses.

A hardship withdrawal also restricts the owner from transferring funds to a 401(k) or other retirement savings account.

Workers are increasingly turning to their 401(k) plans for emergency savings as growing inflation saps their purchasing power.

According to official figures released this week, the Consumer Price Index, a key gauge of inflation, climbed by 4% year on year in May. This was the lowest growth in almost two years. It has dropped from the 9.1% peak achieved last summer, but it remains higher than the Fed’s target of 2%.

Other aspects of the report revealed a slower rate of inflation decline. Core prices increased by 0.4% yearly, or 5.3%, when food and energy expenses are omitted.

Americans are increasingly relying on their savings and credit card debt to meet basic needs.

According to Federal Reserve figures, household debt reached $17 trillion at the start of 2023, and an increasing proportion of families were having difficulty making monthly payments on a variety of debts.

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