401(k) Hardship Withdrawals Are Up

Do you have a 401(k)?

Vanguard reported that 401(k) “hardship” withdrawals hit a record high in October. This fact – plus rising credit card debt and declining personal savings – reveals how many households are struggling financially. “Hardship” withdrawals are allowed for immediate and heavy financial need. They’re abnormal for the typical 401(k) saver, but non-hardship withdrawals also hit an all-time high. These are signs that more and more people need liquidity. 

Liquidity is simply the measure of your ability to exchange an asset for cash. It’s a tool that enables you to stay afloat in a crisis. It provides margin and protection. Liquid assets include cash, checking accounts, saving accounts, and short-term CDs. Non-liquid assets include real estate, jewelry, collectibles, and retirement accounts that haven’t matured beyond the early withdrawal penalty phase. For a small business, it may mean equipment, receivables, or accounts. A good rule of thumb is to have one month of income in actual cash that you keep in a safe place at home and 3 to 6 months in an emergency savings account. Now, of course, this is under normal economic circumstances. If preparing for a worst-case scenario, I would increase both of those amounts as you’re able. To improve your liquidity, you can sell non-liquid assets or reduce spending to increase your monthly savings. If you receive any cash gifts or bonuses, save it and pay off debt to reduce threats to your cash flow.

And if you’re trapped in credit card debt, please contact Christian Credit Counselors. They can create a debt management plan specifically for you. For more information call the Crown Helpline at 800-722-1976 or online at crown.org/ccc.