More Americans than ever are contributing to \u2014 and withdrawing from \u2014 their 401(k)s.<\/p>\n
In 2024, a record 4.8% of workers with these retirement plans took a hardship distribution for financial emergencies, The Wall Street Journal (WSJ) reported<\/a> Saturday (July 26), citing data from Vanguard Group<\/a>.\u00a0<\/p>\n Meanwhile, close to a third of people who leave their jobs each year liquidate their 401(k)s, paying taxes and often penalties rather than putting the money in a retirement fund, the report added. At the same time, lawmakers have continually made it easier to dip into these accounts.<\/p>\n All of this, WSJ said, has ushered in a sea change in how Americans see their retirement savings. There is more than $12 trillion in 401(k)s, but it\u2019s not just for retirement anymore, but rather serving as an emergency fund.<\/p>\n The report cited the example of Oliver Widger<\/a>, who has told his millions of followers about how he cashed out his 401(k) after being diagnosed with a rare health condition. He shares videos about how he and his cat are traveling the world on the boat he purchased, and said in a recent TV interview that \u201cthe only regret I have is not doing it sooner.\u201d\u00a0<\/p>\n This is happening at a time when a significant portion of consumers routinely face major unplanned expenses, per research by PTMNTS Intelligence.<\/p>\n The PYMNTS report, \u201cManaging Unplanned Expenses: How the Pay Later Economy Fits Consumer Needs,\u201d<\/a> underlines the pervasive nature of unexpected spending among American consumers, showing that 35% of them had made an emergency purchase of at $250 or more in the previous year.<\/p>\n \u201cThese unplanned expenses<\/a>, which by definition fall outside planned budgets, typically involve significant amounts, with a median cost of $605 for emergency purchases and $497 for impulse buys,\u201d PYMNTS wrote last month. \u201cCommon categories for these expenditures include auto parts, home maintenance and repair items, and appliances, with median costs ranging from about $500 to over $2,000.\u201d<\/p>\n In another recent change to 401(k) guidelines, the Department of Labor\u2019s<\/a> Employee Benefits Security Administration<\/a> in May revoked<\/a> a 2022 warning that told fiduciaries to exercise \u201cextreme care\u201d before adding cryptocurrency options to the investment menus for 401(k) retirement plans.\u00a0<\/p>\n The department said the language in the 2022 guidance<\/a> was not in keeping with the requirements of the Employee Retirement Income Security Act or with the department\u2019s \u201chistorically neutral, principled-based approach to fiduciary investment decisions.\u201d<\/p>\n \u201cThe Biden administration\u2019s department of labor made a choice to put their thumb on the scale,\u201d U.S. Secretary of Labor Lori Chavez-DeRemer<\/a> said in a news release. \u201cWe\u2019re rolling back this overreach and making it clear that investment decisions should be made by fiduciaries, not D.C. bureaucrats.\u201d<\/p>\n