EDITOR’S NOTE: The following article contains an important survey correction provided by Kiplinger’s Personal Finance. The survey found one-third of respondents took a distribution or loan and NOT 60% as originally reported. We apologize for the error.
While we’ve often seen studies showing that people have largely refrained from raiding their 401ks to help cover expenses during the COVID-19 pandemic, every now and then we hear differently.
According to a new poll released Jan. 6, nearly one-third [corrected] of Americans withdrew or borrowed money from an IRA or 401k during the pandemic, and nearly two-thirds (63%) used those retirement savings to cover basic living expenses.
The national poll, conducted by Kiplinger’s Personal Finance and digital wealth management company Personal Capital, an Empower Company, also found that the amounts people withdrew or borrowed were significant. Thirty-two percent of respondents said they withdrew $75,000 or more from a retirement account, while 58% of those who took loans borrowed between $50,000 and $100,000.
Additionally, more than a third (35%) said they now plan to work longer due to the financial impact the pandemic has had on their plans for retirement.
“Last year presented many challenges “The pandemic not only created a global health crisis, it impacted the financial outlooks and retirement plans of many,” said Jay Shah, president of Personal Capital. Shah added that providing financial tools and educational content are ways they are helping people boost financial literacy. “We believe financial empowerment is one key that will help enable people and families to be more confident about their financial futures.”
Lack of emergency savings evident
In addition to covering everyday living expenses, 41% of those polled said they used their distribution or loan to pay medical expenses, while:
- 32% said the money was used for home repairs
- 26% used the money for auto repairs
- 23% paid tuition
- 21% helped family members
A provision in the CARES Act allowed people under the age of 59½ affected by the coronavirus to take a distribution of up to $100,000 from an IRA, 401k, or similar account without penalty. It also permitted loans of up to$100,000.
Worried about investments
Pandemic-induced market volatility also left nearly three-quarters of respondents (74%) somewhat to very worried about their investments. Nearly half (48%) said they check their portfolio or retirement account balances either daily or weekly. Men were more than three times as likely as women to say they check their balances daily: 35% of men vs. 11% of women.
About a fifth of investors (19%) responded to the bear market early in 2020 by shifting to a more conservative portfolio—9% of respondents sold investments to boost their cash cushions and 6% sold all of their stocks. As of the survey date, current asset allocations for investment portfolios or retirement accounts remained conservative, with investors typically holding just 36% in stocks and a remarkable percentage in cash (24%).
Indeed, the survey found the global pandemic and its impact on the market and economy was a learning moment for investors, who reported these top five takeaways:
- My portfolio strategy was able to weather the bad times
- I need to have more cash reserves
- I need to diversify more
- I took on more risk than necessary
- I need to rebalance my portfolio more often
The survey also asked respondents to weigh in on working from home, the impact of remote work on their spending, and plans for relocation.
Respondents indicated that two-thirds (66%) of workers LOVE working from home, with only 6% expressing dislike of the home office experience. For additional insight on workers’ sentiment about the work-from-home experience and its impact, see a related fact sheet here.
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
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