The average 401(k) loan size grew slightly higher than inflation in 2024, at 4%, according to a new benchmarking report by T. Rowe Price.
The report found that 401(k) loan balances grew to $10,250 in 2024, up from less than $10,000 in 2023.
Participants in all age groups also increased their average loan size in their defined contribution (DC) plan, including those nearing retirement age, found the report. In fact, those closer to retirement age had the highest average loan size. Eleven percent of respondents over age 70 and 10% of individuals between the ages of 65 to 69 had an increase in loan size, compared to 9% for those between the ages of 20 to 29 years old and 4% for those between ages 30 to 39.
Retirement plan loan usage also rose by two points since 2023 but is still lower compared to 2015 to 2019 highs.
The increase in loan usage shows a growing need for emergency savings accounts, reports T. Rowe Price. The data showed that 64% of respondents say they’re unable to cover six months’ worth of expenses, with women much more likely to not afford the cost (72%) compared to men (58%). Further, those who did not have at least six months of emergency savings were two times more likely to take out a loan.
Other reports show that Americans can’t afford most emergency expenses. Research from Empower in 2024 reported that 37% of respondents in their survey could not pay for a $400 emergency cost.
“With rising inflation, market volatility, and ongoing economic shifts, the importance of emergency savings funds and financial wellness programs becomes even more clear,” said Francisco Negrón, head of Retirement Plan Services at T. Rowe Price. “Plan sponsors play a critical role, especially under these circumstances, and can have a direct impact on the financial security of their employees.”
Securing an emergency savings account could have lasting impacts on long-term savings. T. Rowe Price reported that those who have at least six months’ worth of emergency savings are likelier to have higher account balances and higher deferral rates and are less likely to take out a hardship withdrawal or a loan.
While 29% of plan sponsors say they’re likely to incorporate emergency withdrawals within the next 18 months, and 8% are likely to add a pension-linked emergency savings account in the next year and a half, the findings show that participant usage with today’s emergency savings features remains low. While 13% of plan sponsors have adopted emergency expense withdrawals to their plans, just 1.7% of participants utilize the benefit.
Additional findings from T. Rowe Price’s annual benchmarking report can be found here.
SEE ALSO:
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Why Workers Need Emergency Savings Accounts
Voya Partners with SecureSave to Offer Emergency Savings Accounts
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with nearly a decade of experience and a passion for telling stories and reporting news. She is originally from Queens, New York, but now resides in Denver, Colorado.