Downturn leads some to withdraw early from retirement accounts
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Congress waived some of the penalties for withdrawing money from retirement accounts, and some people are going for it.
“People are definitely withdrawing,” said Matt Schulz, chief credit analyst at LendingTree, which recently surveyed 1,200 people with retirement savings accounts.
“About 30% of them said they had withdrawn funds from that account within the last couple of months,” Schulz said. “Another 20% said they would do so.”
Fidelity Investments, which manages retirement accounts for 23 million people, says it’s only seen about 373,000 people take a withdrawal. Meghan Murphy is senior vice president.
“It represents about 1.5% of the people who we keep retirement plans for,” Murphy said. She said almost 9% of people have decreased their contributions, almost double the number a year ago. Vanguard says its customers were withdrawing at about the same pace as last year. Whatever the exact number of people withdrawing from their retirement accounts, David John, senior policy adviser at AARP, expects it to rise.
“Many people have been using more liquid forms of savings to get through this month,” John said. “Now, they’re going to turn to retirement accounts.”
Americans weren’t doing a great job saving for retirement — or saving, period — even before coronavirus.
“Half the population did not have a savings account in 2019 and did not have money for a rainy day,” said Torsten Slok, chief economist at Deutsche Bank.
People who have to make withdrawals or lower their contributions may leave this downturn even less prepared for retirement. LendingTree says the average withdrawal in its survey was $6,800. Over 30 years at 5% interest, that would have become $30,000.
Correction (May 18, 2020): An earlier version of this story misspelled Matt Schulz’s name. The text has been corrected.
COVID-19 Economy FAQs
So what’s up with “Zoom fatigue”?
It’s a real thing. The science backs it up — there’s new research from Stanford University. So why is it that the technology can be so draining? Jeremy Bailenson with Stanford’s Virtual Human Interaction Lab puts it this way: “It’s like being in an elevator where everyone in the elevator stopped and looked right at us for the entire elevator ride at close-up.” Bailenson said turning off self-view and shrinking down the video window can make interactions feel more natural and less emotionally taxing.
How are Americans spending their money these days?
Economists are predicting that pent-up demand for certain goods and services is going to burst out all over as more people get vaccinated. A lot of people had to drastically change their spending in the pandemic because they lost jobs or had their hours cut. But at the same time, most consumers “are still feeling secure or optimistic about their finances,” according to Candace Corlett, president of WSL Strategic Retail, which regularly surveys shoppers. A lot of people enjoy browsing in stores, especially after months of forced online shopping. And another area expecting a post-pandemic boost: travel.
What happened to all of the hazard pay essential workers were getting at the beginning of the pandemic?
Almost a year ago, when the pandemic began, essential workers were hailed as heroes. Back then, many companies gave hazard pay, an extra $2 or so per hour, for coming in to work. That quietly went away for most of them last summer. Without federal action, it’s mostly been up to local governments to create programs and mandates. They’ve helped compensate front-line workers, but they haven’t been perfect. “The solutions are small. They’re piecemeal,” said Molly Kinder at the Brookings Institution’s Metropolitan Policy Program. “You’re seeing these innovative pop-ups because we have failed overall to do something systematically.”
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