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If you’re hungover from a weekend of celebrating Friday’s “Goldilocks” jobs report, MM would like to welcome you to Monday with a serving of ice cold porridge.
A record number of American workers cracked into their retirement savings as inflation soared last year, a dangerous sign that the bulwark amassed by households across two stimulus-flush pandemic years is fading.
Vanguard, which oversees roughly 5 million retirement accounts, found that a growing number of participants in its employer-sponsored plans were requesting loans or seeking withdrawals as inflation rocketed over the last year. Data from the $7.2 trillion asset management firm found that a record number of savers used their 401(k)s to address immediate emergencies like medical bills or prolonged unemployment.
“Their cash buffers have waned,” Vanguard’s Global Head of Investor Research and Policy Fiona Greig told MM. “We’re seeing some early signs that some families are feeling the bite of perhaps higher inflation and wages not keeping pace with that inflation.”
Americans built up a solid financial cushion during the pandemic — unemployment is now at a fifty-year low, after all — but the growing number of 401(k) withdrawals, along with marked declines in personal savings and some troubling loan delinquency figures, suggests the upholstery is getting threadbare. That’s important to keep in mind as more tech and financial services employers announce cutbacks (something we’ll be watching closely on fourth-quarter earnings calls over the next several weeks).
Personal financial health affects consumer behavior and economic expectations as well — something the Federal Reserve is eyeing closely as it weighs new rate hikes to stamp out inflation. We’ll get a clearer sense of both later today with the New York Fed’s monthly inflation survey and the Federal Reserve’s consumer credit report.
It’s not all bad, Greig told MM. The actual percentage of Vanguard plan participants who’ve tapped into their retirement accounts to address hardships is still only about 0.5 percent. And Trump-era changes that made 401(k) withdrawals easier — along with Covid allowances that relieved the tax hit for pulling out cash – have informed people “that this is the pot of money that you can use” in a time of need, she said.
More are likely to take advantage of that pot of money in 2024. The government funding law signed by President Joe Biden last month includes a set of changes, known as Secure 2.0, that will allow individuals to withdraw up to $1,000 from their 401(k)s without paying a tax penalty.
It also includes provisions that will make it easier to save, including auto-enrollment in plans and new rules that would allow companies to match their employees’ student loan payments with retirement contributions.
“Are we going to see an increase in hardship? Possibly, but I think there are really positive provisions in Secure 2.0 that might help protect that nest egg,” Greig said.

Politico