Given that the S&P 500 fell 3.7% in the third quarter of this year, it’s not surprising that 401(k) account balances followed suit.
The average 401(k) balance was down 4% from the second quarter, but is still up 11% from a year ago and up 27% over the past decade, according to a new analysis from Fidelity Investments, one of the largest US providers of workplace retirement plans.
What’s more, savings rates remained strong. Including both their own and their employers’ contributions, 401(k) participants were saving an average of 13.9% of their income, up slightly from a year ago, Fidelity said. Baby Boomers who are still in the workforce were socking away the most, at an average of 16.7%.
But the increase in withdrawals and loans suggest some financial stress
Nevertheless, more people took money out of their 401(k) plan last quarter, indicating financial strain.
Fidelity found that 2.3% of workers took hardship withdrawals, up from 1.8% a year ago. The top reasons cited: Avoiding foreclosure or eviction; and medical costs.
Withdrawals from one’s 401(k) are subject to income tax. And if they are made before age 59-1/2 they also may be subject to a 10% early withdrawal penalty unless the money is intended to meet an immediate financial need that is considered a “hardship,” such as medical expenses or efforts to avoid losing one’s home.