Bank of America Data Shows Rise in 401(k) Hardship Withdrawals Due to Inflation

Bank of America has reported a notable rise in early access to retirement savings through 401(k) plans, a trend largely influenced by persistent inflation and increasing living expenses. Recent data indicates that around 18,040 participants opted for "hardship" withdrawals, averaging $5,070, between July and September 2023. This represents a 13% increase since June and a 27% rise compared to January.

These withdrawals, which incur income tax and may also attract a 10% penalty for early access, are commonly used to address immediate financial needs, including healthcare costs. At the same time, there has been a rise in contributions to health savings accounts, with funds increasingly being allocated for current healthcare expenses rather than future ones.

The uptick in early withdrawals is occurring despite strong GDP growth and low unemployment rates, highlighting the financial pressure that many Americans are facing as inflation continues to diminish their purchasing power. The consumer price index indicated a 3.7% increase in prices for goods year-on-year in September, while core inflation remains more than double the Federal Reserve’s target of 2%.

Alongside dipping into their retirement savings, Americans are also accumulating more credit card debt to cope with daily expenses, with delinquencies reaching their highest level in the last 12 years. Nevertheless, fewer than 1% of Bank of America’s 4 million plan participants are making withdrawals from their retirement funds.

Interestingly, younger generations, including Gen Z and millennials, are increasing their contributions to their retirement plans despite the tough economic landscape. This indicates a shift in financial behavior among different age groups during times of economic stress.

Insights into Bank of America’s financial health reveal a market capitalization of $222.14 billion, a price-to-earnings (P/E) ratio of 7.82, and a revenue growth of 5.74% over the past year as of the third quarter of 2023. These metrics suggest strong financial performance, potentially providing a cushion against the economic challenges faced by many consumers due to inflation.

The bank’s record of ten consecutive years of increasing dividends reflects a solid commitment to delivering value to shareholders. Additionally, the bank’s low P/E ratio relative to its short-term earnings growth may indicate it is undervalued.

However, it is important to note that nine analysts have recently lowered their earnings forecasts for the upcoming period, likely in response to the aforementioned economic challenges such as rising credit card delinquencies and increased early withdrawals from retirement accounts.

For more insights into Bank of America’s financial outlook, further tips and data can offer a more comprehensive understanding of the situation.

This article was generated with the support of AI and reviewed by an editor.