Nearly half of individuals who took a loan or withdrawal from their retirement plan during the COVID-19 pandemic agree or strongly agree they withdrew more than they needed.
However, a significant amount (68%) of individuals agree or strongly agree they are now in a better place financially because they took a loan or withdrawal, according to new research from Voya Financial.
As the COVID-19 pandemic led to lost wages, a rise in health care needs and other unplanned expenses, many individuals experienced financial uncertainty like never before. This is why the Coronavirus Aid, Relief, and Economic Security (CARES) Act included provisions that enabled those struggling with economic hardship from the coronavirus pandemic to take early withdrawals (“coronavirus-related distributions”) or loans from qualified retirement accounts.
“When financial hardship hits, we understand that individuals need to take action to support themselves and their families,” Charlie Nelson, vice chairman and chief growth officer with Voya Financial, said in a statement. “It is also telling that nearly half of individuals say they took more than they needed. With greater understanding as to how individuals accessed their workplace retirement plans and other long-term savings to meet their needs, we believe there is an opportunity to leverage this new research and look at ways we can help individuals become better prepared for financial emergencies.”
Persistent concerns
Despite the majority of respondents agreeing they are in a better place financially as a result of taking a loan or hardship withdrawal, Voya’s survey also uncovered concern about the impact that borrowing from their retirement savings will have on their long-term financial wellness.
Specifically, a majority (65%) agreed that borrowing from their accounts has put them behind in saving for retirement. What’s more, over half (59%) of individuals wish they had consulted a financial professional before taking a loan or withdrawal.
According to Voya, many individuals have already taken action to get back on track financially. The results of the survey also revealed that nearly four in 10 Americans are reducing overall expenses, and over one quarter (29%) are re-evaluating their monthly budget.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
