The small percentage of retirement plan participants who requested a COVID-19 loan or distribution in 2020 enabled by the CARES Act—about 6% of those eligible to take a coronavirus-related distribution (CRD)—appear to have done so out of desperation, and are still struggling to recover.
This according to the latest batch of CARES Act research released this week from Principal Financial Group, which surveyed 1,473 U.S. residents who have a retirement plan with Principal and requested a loan (22%) or withdrawal (78%) from their plan in 2020.
Among the more troubling findings?
- Nearly 70% of participants don’t plan/are unable to pay back any of the money they withdrew from their retirement account. Just 18% said they plan to repay part of the money back to their retirement account, and 13% plan to pay it all back.
- The majority (62%) used their loan or withdrawal to simply pay essential expenses, with 48% using it for their mortgage or rent. Less than 5% of participants reported using the loan or distribution money for expenses not directly related to impacts from COVID.
- Just 10% of those that took a loan or distribution say they are currently financially stable. Just 29% said it will take less than a year to recover, while over half said it may take 2-5 years to recover.
- A third of participants describe their sentiment regarding the economic—and their personal financial outlook—for the next 12 months as “cautious.” About one-third said they were “optimistic” about their personal financial outlook and only 6% said they were “pessimistic” about it.
As for the amounts participants took as loans or distributions, the average amount requested was slightly below $17,000, with the median amount at $8,400. While 55% took out less than $25,000, 19% percent took out between $50,000-$74,000, and 11% took out $100,000.
Gen Xers were most likely to request a loan or distribution, as 44% of the 1,473 in the survey were from Gen X (born 1965-1977). Next at 31% was Gen Y (born 1978-1995), while Boomers (born 1946-1964) made up 24% of those taking a loan or distribution in the survey.
Interestingly, despite the pandemic, overall loan request activity was down 20% in 2020.
The research was compiled and reported by Shayna Smith, Sr. Market Research Consultant at Des Moines, Iowa-based Principal.
SEE ALSO:
- By the Numbers: 401k Plan CARES Act Activity
- 9% of 401k Participants Took a CARES Act Distribution in 2020