Bank of America data shows rise in 401(k) hardship withdrawals due to inflation

Bank of America has reported a significant increase in the number of its 401(k) participants accessing their retirement savings early, a trend driven by high inflation and escalating living costs. The bank’s data reveals that approximately 18,040 participants made “hardship” withdrawals, averaging $5,070, between July and September 2023. This marks a 13% rise since June and a 27% surge from January.

These withdrawals, which are subject to income tax and potentially a 10% early withdrawal fee, are typically resorted to for immediate financial needs such as healthcare expenses. Concurrently, there has been an increase in health savings account contributions being used for current healthcare costs as opposed to future ones.

The growing trend of early withdrawals from retirement savings is occurring despite robust GDP growth and low unemployment rates. It indicates the financial strain Americans are under due to stubborn inflation eroding their purchasing power. The consumer price index revealed a 3.7% year-on-year rise in goods prices in September, with core prices running at more than twice the Federal Reserve’s 2% target.

In addition to tapping into their savings, Americans are also accruing more credit card debt to manage living expenses. Credit card delinquencies have reached a peak not seen in 12 years. However, less than 1% of Bank of America’s 4 million plan participants are resorting to retirement fund withdrawals.

Interestingly, younger generations such as Gen Z and millennials are increasing their contributions to these plans despite the challenging economic climate. This suggests a divergence in financial behavior between different age groups during periods of increased economic pressure.

InvestingPro Insights

Drawing from InvestingPro’s wealth of real-time data and expert tips, we can gain a deeper understanding of Bank of America’s current financial standing.

InvestingPro’s real-time metrics reveal a market cap of $222.14 billion, a P/E ratio of 7.82, and a revenue growth of 5.74% in the last twelve months as of Q3 2023. These figures indicate a solid financial performance and could be a potential buffer against the financial strain that Americans are facing due to inflation.

InvestingPro Tips highlights that Bank of America has seen accelerating revenue growth and has a history of raising its dividend for 10 consecutive years. This shows a strong commitment to delivering shareholder value. In addition, the bank is trading at a low P/E ratio relative to its near-term earnings growth, suggesting it could be undervalued.

However, it’s important to note that 9 analysts have revised their earnings downwards for the upcoming period. This could be a reflection of the challenges mentioned in the article, such as increasing credit card delinquencies and early retirement fund withdrawals.

For more insights like these, consider exploring the additional 7 tips provided by InvestingPro, which can offer a more comprehensive view of Bank of America’s financial outlook.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.