Vanguard Group data revealed that 3.6% of individuals tapped into their 401K savings in 2023 amid high inflation. Vanguard Senior Financial Advisor Mary Ryan joins Yahoo Finance Live to discuss managing financial emergencies and retirement planning.
Ryan notes that savings “depends on the goal.” For retirement savings, she recommends contributing enough to receive the full employer match. Ryan also suggests that automatic payroll deductions can help individuals maintain discipline when it comes to saving.
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Editor’s note: This article was written by Angel Smith
Video Transcript
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RACHELLE AKUFFO: Well, according to data from Vanguard Group, a record 3.6% of workers tapped into their 401K savings in 2023 as hardship loans amid high inflation continued. Now typically, early withdrawals come with a 10% tax penalty from the IRS plus income tax on that money you withdraw.
So for more on how to manage today’s financial emergencies without jeopardizing your future savings, let’s bring in Mary Ryan, Vanguard Senior Financial Advisor. Thank you so much for joining us today, Mary. So talk about this record share of withdrawals that we’ve seen from people coming out of their 401K’s. How much of– why do you think we’re seeing that, given some of the penalties that can come with hardship withdrawals?
MARY RYAN: Thank you so much, Rachelle. Looking forward to talking with you today. That is a stat that has come out. It is not really my area of expertise here at Vanguard, but I will say this. When looking at your retirement accounts, looking at your plans, there are opportunities– so perhaps you could take advantage of should you need the money. But most importantly is you want to save that money too.
AKIKO FUJITA: So let’s talk about some of those tips, to get started on the right footing, Mary. As Americans consider what their budget is right now, how much of that should they be setting aside for savings?
MARY RYAN: I think it depends on the goal. So when looking at savings, you could have different goals. You could have a shorter term goal like, for example, you want to buy a house or you need to get a new car, things– you want to plan a trip. Things like that. And that’s a shorter term goal.
If you’re looking for your long-term goals, such as retirement, and you have a 401K or a 403B, you want to make sure that you do, at the very least, make sure that you’re hitting your match that is usually offered within those plans. It’s important, though, to make sure you pay attention to what your goal is regardless, so that you stay focused on it, and you make sure you’re doing what you need to do to get there.
RACHELLE AKUFFO: And Mary, of course, we are in this season where people are getting their bonuses, getting their annual raises. It can be hard to create better habits when you haven’t already got them in place. What should you do if you do come into a chunk of money or a considerable raise in your income?
MARY RYAN: So like anything else, one of the things I suggest to people– and I think whether it’s a bonus or particularly a raise in income, things like that– many companies will allow you to go ahead– and you get your paycheck. It comes in, full paycheck right into your checking account. But they also may allow you to say, let’s put some money aside in just a separate savings account, so you don’t have to think about it.
So now, you’ve got this extra money from a bonus or you’ve got extra money for your salary, you just put it aside automatically. That also plays in, again, into perhaps increasing the amount that you’re putting into a retirement plan. Make sure you take advantage of that as well, but to be disciplined about it. And I keep going back to this same theme, but knowing your why, knowing why you want to save that money and to be very, very clear about it as to why you’re saving that money.