Americans Increasingly Treat 401(k) As Emergency Fund

Americans are increasingly tapping their 401(k) accounts not just for long-term retirement, but as emergency funds in the face of financial strain.

Transcript

00:00Americans are increasingly tapping into their 401k accounts, not just for long-term retirement,

00:06but as emergency funds in the face of financial strain. In 2024, a record 4.8 percent of workers

00:13took hardship withdrawals, up from a pre-pandemic average of about 2 percent and 3.6 percent in

00:212023, often for reasons like medical bills or avoiding foreclosure. Legislative changes,

00:28including a 2022 law allowing penalty-free $1,000 emergency withdrawals once every three

00:35years, alongside widespread automatic enrollment, have made early access easier and more common.

00:42Although retirement balances hit a record average of around $148,000 last year,

00:48experts warn these withdrawals could significantly erode future savings,

00:52especially when coupled with taxes and penalties.