New data from Fidelity Investments finds more investors are taking loans and hardship withdrawals from their 401(k)s, a troubling sign amidst economic stagnation.
On Friday, Fidelity said that 62,000 401(k) participants initiated a hardship withdrawal from their account in the second quarter, and that 2.2% of Fidelity's active participants took such withdrawals during the quarter. Both figures were an increase over the first quarter, when 45,000 participants initiated a hardship withdrawal and 2.0% of Fidelity's active participants took such action.
Furthermore, 45% of participants who took hardship withdrawals in the prior year also took a hardship withdrawal in the 12-month period ending in this year's second quarter.
The data covers 11 million 401(k) participants in the 17,000 company retirement plans handled by Fidelity.
In the loan department, 11% of total active 401(k) participants initiated a loan on their account in the year ending in the second quarter, up from 9% in the year-earlier period. The average initial loan amount as of the end of the second quarter was $8,650, with an average loan duration of three-and-a-half years.
"The majority of participants continue to make saving through their workplace plans a priority," said James M. MacDonald, president of workplace investing at Fidelity Investments. "However, the current economy has forced some workers to borrow from their 401(k) accounts in order to pay for critical living expenses, ultimately jeopardizing their future retirement."
On the bright side, the average 401(k) account balance at the end of the second quarter was $61,800, a 15% jump over the year-earlier period but down from the end of this year's first quarter. The average deferral rate--the percentage of a participant's salary saved--held steady during the quarter at about 8%, with 32% of participants deferring at 10% or higher.
As was the case in the first quarter, more participants increased their deferrals (5.3%) than decreased them (2.9%).