HARDSHIP WITHDRAWAL: Do You Have Emergency Funds?

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According to a new study by Fidelity, Americans are increasingly turning to their 401(k)s to withdraw money in what are known as hardship withdrawals. As explained by Fidelity “Hardship withdrawals are only available to workers experiencing an “immediate and heavy” financial need as defined by the IRS. They are only allowed to withdraw funds to cover their need. While hardship withdrawals do not have to be repaid, they are subject to taxes and penalties. Hardship withdrawals are allowed for the following reasons: medical expenses (including dental), avoiding foreclosure/eviction from primary residence, funeral expenses, damage to principal residence, tuition for secondary education, purchase of primary residence or FEMA event related expenses.”

• Inflation has played a part in pressuring Americans’ finances. Fidelity explains that it’s a big concern among workers, writing:
• According to a recent Fidelity survey, 74% of respondents say that inflation is causing them stress.
• Additionally, 31% say inflation is impacting their ability to concentrate at work.
• The same survey results indicated that just over one third (37%) feel excellent or very good about their finances.
• More than half (56%) of employees say they would feel a little or completely overwhelmed if an unexpected financial challenge came up (e.g., medical issue).

In the third quarter of 2022, 1.8% of 401(k) owners used hardship withdrawals to remove money from their 401(k). In the third quarter of 2023, that number increased to 2.3%. That’s a significant increase on such a large number of 401(k) participants.

Action Line: Make sure you have a plan for retirement that includes saving til it hurts, and an allocation to emergency funds that will help you avoid dipping into retirement savings. When you want help, let’s talk.

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West (RIP JB) and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com To sign up for my free monthly Survive & Thrive letter, click here.

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