(WXYZ) — New data is showing a record amount of Americans are taking money out of their 401Ks early to pay for emergencies and simply make ends meet.
The Vanguard Group published their own internal data that shows 3.6% of their participants took early withdrawals from their 401Ks last year, a spike from 2022.
We posted on our Facebookasking people if they've taken an emergency withdrawal. I was blown away as more than 800 people commented on the post.
I spoke with some of the people who reached out to us, and with a financial expert about the smartest way to go about withdrawing your money if you have to.
"Did you ever imagine that you would have to dip into your retirement fund?" I asked Miechelle Croft.
"Never. We had it so planned out when we decided to sell the business," Croft said.
Croft tells me she and her husband are supposed to be in their golden years, taking cruises, and enjoying life and years of owning and running a fabrication shop in Roseville.
"We were very successful," she said.
But when the COVID-19 pandemic hit, their business declined. Couple that with needing to help our their daughter, who was struggling financially, and the Crofts have found themselves needing to withdraw from their 401Ks to make ends meet.
People who draw from the accounts must pay income tax, and if they're under 59 years of age, often a 10% penalty as well.
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"Well, we just had to pull out this last November to pay the taxes. We’re going to have to pull more out this summer to pay the taxes Up North," Croft said.
"Do you know other people who have also had to pull out of their retirement savings?" I asked.
"Everybody! Everybody that we speak to are doing the same thing, it’s terrible," she said.
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The Vanguard Group published this data showing just how much the amount of people withdrawing from their retirement has spiked.
According to their own internal data, 3.6% of their participants took early withdrawals from their 401Ks in 2023. That's up from 2.8% in 2022. Before the pandemic, it was just 2%.
"There are a few things to consider, before you take a withdrawal from your 401K," Daniel Seder said. He's a managing partner at Blue Chip Partners.
Seder advises that if you are still employed, you may be able to take a loan from your 401K rather than taking money out for good. He said that's a far better option.
"If you take a loan from your 401(K), you don’t have to pay tax and there isn’t a penalty if you’re under age 59 1/2," he said.
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What's more, Seder shares that you can pay the loan back over a five-year period, and any interest you pay goes into your own account.
"So you’re effectively paying yourself back for taking a loan. That’s very powerful," he said.
Chris Weigel, from Roseville, found himself having to pay for dental surgery and braces for his daughter this past year. He was forced to pull out his retirement savings to make it happen.
Thankfully, just as Seder recommended, he was able to take a loan rather than a direct withdrawal.
"If it’s there, borrow it, pay yourself back, get yourself out of the hole," he said.
According to Vanguard, in 2023, more than 75% of hardships withdrawals totaled $5,000 or less. Seder said taking any money out of your 401K robs you of opportunities, so try to look for other sources of equity to pull from. However, sometimes life happens.
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As far as Croft, she's hoping to sell some assets to turn things around soon. Her advice is to plan for the unexpected.
"Plans fall through. We planned appropriately, we had everything in place, and things happen," she said.
