New information about the state of 401(k) saving (and savers) resulted in good and bad news from one of the nation’s largest recordkeepers.
Good news—average 401(k) balances are up almost 10% for the year through the second quarter. Bad news—workers taking hardship withdrawals and borrowing from their workplace plans also increased.
Bank of America found average 401(k) balances increased by $7,250 (9.6%), yet the number of participants taking hardship distributions increased 36% year-over-year. Additionally, the percentage of participants borrowing from their workplace plan in Q2 also increased to 2.5%, up from 1.9% in Q1.
“The data from our report tells two stories—one of balance growth, optimism from younger employees and maintaining contributions, contrasted with a trend of increased plan withdrawals,” Lorna Sabbia, Head of Retirement and Personal Wealth Solutions at Bank of America, said in a statement. “This year, more employees are understandably prioritizing short-term expenses over long-term saving. However, it’s critical that employees continue to invest in life’s biggest expense—retirement.”
Amid rising 401(k) plan withdrawals, employee contributions remained steady, with the average rate remaining 6.5% throughout the first half of 2023.
Meanwhile, more participants increased their rate than decreased their rate (10.2% vs. 2.2%) in Q2, which was led by Gen Z and Millennial employees.
HSA and Financial Wellness Trends
HSA account balances increased by 11.9% over year-end 2022. Average HSA account balances increased from $3,931 to $4,397 in the first six months of 2023.
Many HSA account holders continue to save their contributions for future expenses. Nearly four in 10 account holders contributed more than they withdrew in Q2, consistent with year-end 2022.
Baby Boomers invested their HSAs at higher rates than other generations. On average, only 12% of account holders invested their HSAs for future growth in Q2, with Baby Boomers leading at 15%. In addition, more men invested than women (18% vs. 11%).
Feelings of financial wellness declined slightly. Out of a possible 100 points, the average financial wellness score for employees was 56, down one point from 57 at year-end, with women trailing men (52 vs. 59).
