As the Coronavirus pandemic continues to wreak havoc on the economy, a new study finds that many Americans are dipping into their retirement accounts to pay for essentials.
The survey by MagnifyMoney found that, of those with a retirement savings account, 3 in 10 have withdrawn funds from their account within the last two months—and the majority of those who have done so spent the proceeds on groceries. Another 19% of respondents said they plan on doing so but haven’t yet. On average, those who withdrew funds took out $6,757, according to the findings.
These findings appear to be a little more far-reaching than recent findings by Transamerica Center for Retirement Studies, which found that one in five workers (22%) have already and/or plan to take a loan and/or withdrawal from their 401(k), 403(b), or similar plans.
MagnifyMoney’s survey also found that nearly half of savers (47%) have either stopped or lowered their retirement savings contributions amid the pandemic—specifically, 21% have reduced their contributions and 26% have stopped saving altogether. Baby Boomers were found to be the age group most likely to pause their retirement contributions, with 53% stopping their contributions, while 17% of Millennials have paused their retirement contributions, followed by just 10% of those in Gen Z.
Not surprisingly, there are generational differences in who is making withdrawals. The findings show that 40% of Gen Xers took money out versus 37% of Millennials and only 7% of Baby Boomers.
Additionally, more than half of those who took out retirement money said they did so to cover necessary expenses, such as groceries, housing payments and bills. The reasons for withdrawing from retirement accounts cited most often include:
- covering expenses (52%);
- job loss (26%); and
- concerns over losing money in the stock market (15%).
MagnifyMoney further observes that one of the reasons so many respondents are making early withdrawals may be due, in part, to the CARES Act provision waiving the early withdrawal penalty for Coronavirus-related withdrawals up to $100,000 from qualified retirement plans and IRAs. The survey found that 24% of people who withdrew funds early did so to take advantage of the legislation.
The survey also reveals that 60% of those who have withdrawn money from their retirement accounts regret their decision to do so. Notably, 77% plan to pay back those funds.
Meanwhile, among those obligated to take required minimum distributions (RMDs), 56% plan to forgo that in 2020 as allowed for by the CARES Act. Interestingly, the study observes that that’s mostly true for Millennials and Gen Xers, who presumably inherited a retirement plan. Yet, far fewer Baby Boomers and members of the Silent Generation plan to forego their RMD.
The findings are based on an online survey 1,239 Americans with a retirement savings account conducted by Qualtrics on behalf of MagnifyMoney. The survey was fielded April 28-May 1, 2020, and the sample base was proportioned to represent the overall population.
