(Fox Business) - The average balance in employer-sponsored retirement contribution plans plunged more than 20% last year, according to new data from Vanguard Group.
Vanguard, which tracks about 5 million retirement accounts, found the average account balance for 401(k)s and 403(b)s was $112,572 in 2022 – down nearly $30,000 from the previous year.
"Vanguard participants’ average account balances decreased by 20% since year-end 2021, driven primarily by the decrease in equity and bond markets over the year," the report said.
One-third of account holders actually had a balance of less than $10,000 and about one-quarter held more than $100,000. Just 12% had a balance of $250,000 or higher.
At the same time, a growing number of Americans tapped their retirement accounts to cover a financial emergency as high inflation raged.
About 2.8% of workers participating in employer-sponsored 401(k) plans made a so-called "hardship" withdrawal in 2022, according to the report. That marks a major increase from the 2% rate recorded before the pandemic began and is also up from the 2.1% reading in 2021.
Hardship withdrawals allow workers to tap their 401(k) for an "immediate and heavy financial need."
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Individuals who make these types of withdrawals owe income tax on the money and could be hit with a 10% early withdrawal fee if they are under the age of 59½. However, the penalty can be waived if workers provide adequate evidence that the money is being used for a qualified hardship, such as a medical expense.
A person who takes a hardship withdrawal also cannot pay it back to their 401(k) and cannot roll that money into another retirement savings account.
The increase in workers tapping their 401(k)s for emergency purposes comes as they confront high inflation that has rapidly eroded their purchasing power.
The government reported this week that the Consumer Price Index, a key measure of inflation, rose 4% in May from the previous year, the smallest increase in more than two years. While that is down from a peak of 9.1% hit last summer, it remains about twice the Fed's target 2% rate.
Other parts of the report also pointed to a slower retreat for inflation. Core prices, which exclude the more volatile measurements of food and energy, climbed 0.4%, or 5.3% annually.
Americans are increasingly relying on their savings and racking up credit card debt in order to pay for necessities.
Household debt hit $17 trillion at the beginning of 2023, according to Federal Reserve data, and a growing number of households fell behind on payments for several types of loans.
By Megan Henney
