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Despite the easing of rules for withdrawals under last year's Coronavirus Aid, Relief and Economic Security (CARES) Act, most investors have kept their retirement savings on track, according to analysis by Vanguard.
Seventy-three percent of the company's plan sponsors permitted their participants to access retirement funds if needed. Of the participants offered the option to withdraw assets, 5.7 percent accessed a portion of their savings.
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Of those who initiated a withdrawal, 69 percent took one distribution, while 31 percent initiated multiple distributions over the nine months.
The average distribution was $15,700, and the median was $6,500. However, because nearly one-third of participants who initiated a withdrawal took multiple distributions, the average participant distribution was approximately $24,600, with a median of $13,300.
Nearly one in four participant distributions was for less than $5,000, and 60 percent of all withdrawals were for less than $20,000. Withdrawals of more than $30,000 were less common, and only 4 percent of participants withdrew the maximum amount of $100,000.
Participants who accessed their retirement assets early may experience a shortfall upon reaching retirement.
The median age was 42, and the median income was about $61,400. Assuming a real investment return of 4 percent, the median participant distribution would grow to approximately $35,000 over the next 25 years. For the typical participant, this return would represent the future financial impact at retirement.
As affected participants consider how to close this shortfall, the amount by which they may need to increase their savings depends on various factors, such as distribution amount, time until retirement and earnings.
Based on the median amounts or the typical participant, many of them could cover this potential shortfall simply by increasing their deferral rate by one percentage point.
And while many participants may not be ready in the short term to increase their retirement savings contributions, it is important for them to recognize this shortfall and, when their financial situation improves, take appropriate action.
"Last year was unprecedented worldwide," the analysis concluded. "The flexibility provided by the CARES Act allowed for additional financial options for workers with retirement savings to prepare for unforeseen circumstances. While this added flexibility is helpful to many, it is encouraging that the vast majority of participants did not access their retirement savings during this crisis and are staying the course on preparing for retirement."
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Alan Goforth
Alan Goforth is a freelance writer in suburban Kansas City. In addition to freelancing for several publications, he has written a dozen books about sports and other topics.
