401(k) Loans Surge While Emergency Savings Dwindle

A new T. Rowe Price study has raised alarms about rising 401(k) loans and a dip in emergency savings.

By Rethinking65

A newly published report by global investment leader T. Rowe Price, has raised alarms about rising 401(k) loans and an alarming dip in emergency savings.

Key findings

  • Worrying Savings Trends: 70% of participants have failed to save six months’ worth of emergency expenses. Disturbingly, 46% have less than $1,000 saved for unexpected costs. Participants cited rising credit card debt, mortgage payments, and car payments as the top three reasons for an inability to save.
  • Reasons for Low Savings: Participants blamed escalating credit card debt, mortgage, and car payments for their inability to save.
  • 401(k) Loan Insights: Loan upticks were observed across all age brackets. However, individuals between 50-59 years emerged as the largest borrowers, holding the highest loan balances. Loans have consistently increased since a low in 2020.
  • Savings Rate: Even with inflation, participants maintained an average deferral rate of 8.5%.
  • Digital Engagement Grows: 2023 has seen increased consumption of digital retirement planning content. Particularly, educational videos about financial wellness have been a hit.

A crucial highlight of the study, which was based on the company’s analysis of its retirement-plan customers, points to participants who invest wholly in a target-date product. They are 24 times more prone to remain committed to their investment. Also, participants who took a loan or a hardship withdrawal were two times less inclined to opt for auto-increases. Furthermore, a mere 13% of participants make catch-up contributions when they hit 50.

Rachel Weker, a senior retirement strategist for Retirement Plan Services at T. Rowe Price, noted the positive trend of participants maintaining savings levels and utilizing personalized education. However, she emphasized the need for better financial education to juggle urgent needs like debt and emergencies without sidelining retirement savings.

The study also found that participants were five times more likely to seek additional resources and two times more likely to increase their deferral rate after watching a personalized educational video.

  1. Rowe Price had $1.4 trillion in assets under management as of August 31, 2023.

Latest news

Black Swan Fears Drive Caution, Plus 60/40 Three-Decade Performance

VIX sees record trading as looming economic and geopolitical risks keep investors cautious about a potential return of volatility.

Carson Group: Still Too Few Women in Wealth Management

Its latest report confirms the industry has made little progress in gender diversity despite a lot of talk.

Supreme Court Seems Wary of SEC’s In-House Tribunals Without Juries

The Supreme Court discussed a case involving a hedge fund manager in which the SEC brought a civil enforcement proceeding that charged he mislead investors.

Annuity Sales Continue March Upward

Annuity sales are set to have another record-breaking year, based on results in the third quarter.

Humana, Cigna in Talks to Merge

A deal would give Cigna a much greater foothold in the fast-growing market for managing federal Medicare plans for older Americans.

Aretha Franklin’s Sons Awarded Late Singer’s Real Estate

They now own the late singer's real estate after a judge ruled that a handwritten will found hidden in her sofa was the correct document.