Are Early Retirement Account Withdrawals the New Norm Among Young Investors?

Whether it’s overconfidence or something else at work, a new study reveals that early retirement account withdrawals among young investors have been trending upward over the last few years.

E*TRADE Financial Corporation’s most recent issue of StreetWise, the firm’s quarterly tracking study of experienced investors, finds that nearly 60% of young investors admitted they had made an early withdrawal from their retirement account in 2018.

In fact, the results show a sharp upward swing over the past three years in early withdrawals among young investors — defined as those between ages 18–34 — increasing from 31% in 2015, to 50% in 2017 to the current level of 59%.

E*TRADE suggests that these young investors may be overly secure about achieving their desired retirement and are in critical need of retirement savings knowledge. According to the findings, nearly all of the young investors surveyed (89%) feel somewhat-to-very confident that they will save enough to enjoy their retirement.

This level is consistent with the other age groups in the survey, younger investors, however, don’t think they’ll need as much as their older peers. They are most likely to think they’ll only need between $250,000 and $999,999 for a successful retirement (49%). Boomer investors, meanwhile, tend to disagree, with more of these respondents believing they will need between $1 million and $2 million for a successful retirement (43%).

“Saving for retirement continues to be a key challenge and a core area of focus for investors,” said Mike Loewengart, VP of Investment Strategy at E*TRADE Financial. “While some younger investors have started on a solid savings path, many are exhibiting behavior that runs counter to their goals. There’s a need to bridge the gap between education and action, and the good news is, it’s never too late.”

Perhaps one positive finding from the study is that 38% of young respondents say they are saving between 6–10% of their income for retirement, and another 24% say they are saving between 11–16%. More concerning might be the low end of this group; the findings show that 20% of younger investors say they are saving only between 1–5% of their income.

This wave of the survey fielded by Research Now was conducted July 1-11, 2018 among an online US sample of 940 self-directed active investors, with a sample of 284 young investors between the ages of 18 and 34 who manage at least $10,000 in an online brokerage account. The panel is broken into thirds of active (trade more than once a week), swing (trade less than once a week but more than once a month), and passive (trade less than once a month).

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