Recent findings by the TransAmerica Center for Retirement Studies show that individuals are withdrawing from their retirement accounts at worrisome levels, with these withdrawals posing risks to long-term savings growth.
Prevalence of Loans and Withdrawals from Retirement Accounts
The report reveals that 33% of savers have taken a loan, early withdrawal, or hardship withdrawal from accounts like 401(k)s or IRAs. This includes 26% who have taken loans and 18% who’ve made early or hardship withdrawals. Notably, while 17% repaid their loans in full, a concerning 6% couldn’t repay their loans.
“The TSP forecasts that around 500,000 investors will take loans totaling over $7 billion in 2024.”
Impact on Federal Employees and TSP Accounts
Though the study doesn’t target federal employees, many surveyed fall within the same income range and use similar retirement savings accounts like the TSP. Reflecting this trend, the TSP itself has reported a rise in account loans, with general-purpose loans in 2024 up 14% compared to the same period in 2023.
Projected Loan and Withdrawal Activity in TSP for 2024
The TSP forecasts that around 500,000 investors will take loans totaling over $7 billion in 2024. This would represent more than double the numbers seen from 2019-2021. Additionally, a similar increase is expected in age-based and hardship in-service withdrawals, with about 500,000 withdrawals potentially amounting to $12 billion, continuing the upward trend seen since 2022.
Reasons for Increased Loans and Withdrawals
According to the survey, financial emergencies were the top reason for loans from 401(k)-type accounts (28%), followed by debt repayment (22%), covering daily expenses (21%), and medical bills (20%). Major unplanned expenses also contributed, along with needs like home improvements, vehicle purchases, and college tuition.
Common Motivations for Hardship Withdrawals
The study also highlighted common reasons for hardship withdrawals, with 17% citing natural disaster losses and medical expenses, 15% for home expenses, and 13% for college tuition. These findings reflect the financial strains leading retirement savers to tap into their accounts prematurely, potentially undermining their future retirement security.
To help keep your retirement plans on track, reach out to an FRC® trained advisor.
