Reuters reports on the recent rise in hardship loans at Fidelity Investments as an increasing number of workers take money out of their retirement savings instead of putting money in during their peak earning years in a weak (and getting weaker) economy.
A record number of U.S. workers are tapping into their retirement accounts to make it through the economic downturn, Fidelity Investments found in a survey released on Friday.
Among the 11 million workers whose 401(k) plans are run by Fidelity, 11 percent took out a loan from their plan during the 12 months ended June 30, the company said, up from 9 percent at the same point a year earlier.
By the end of the second quarter, plan participants with loans outstanding against their 401(k) accounts had reached 22 percent versus 20 percent a year earlier.
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Loans and withdrawals were highest among workers between 35 to 55 years old, Fidelity found, peak earnings years.
Fidelity, the Boston mutual fund giant, is also the country’s largest administrator of retirement savings plans like 401(k)s, making its quarterly survey a closely watched barometer of saver behavior.
As more companies end traditional “defined benefit” plans like pensions, workers are relying more on “defined contribution” plans like 401(k)s to carry them through retirement.
How well these “defined contribution” plans carry workers through retirement remains to be seen. So far, based on the relatively low number of six figure 401k balances, expectations shouldn’t be too high. The fact that 401k holders have to manage their own money – investment choices, withdrawal rates, etc. – makes the chances of success even slimmer.
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