In spite of the economic and financial stresses brought on by the pandemic, most Americans have not taken any withdrawals from their defined contribution (DC) retirement plans. The vast majority of U.S. retirement savers have continued to make contributions to their plans throughout the pandemic, according to a recent Investment Company Institute (ICI) report.
“Despite the economic challenges over the past year and a half, retirement savers show deep commitment to preserving their retirement nest eggs,” Sarah Holden, ICI senior director of retirement and investor research, said. “The combination of ongoing contributions and few participants taking withdrawals reflects DC plan participants’ long-term mindset and preference to keep this money earmarked for retirement and avoid dipping into it.”
ICI is a global association of regulated funds, including mutual funds, ETFs, closed-end funds, and unit investment trusts (UITs) in the United States, with similar funds offered to investors in jurisdictions worldwide. ICI’s study tracked the contributions, withdrawals, and other activity in 401(k) and other DC retirement plans of over 30 million participant accounts at the end of June 2021.
Indeed, the pandemic has been characterized by an unexpectedly high level of saving. Though many households have been faced with financial constraints over the past year and a half, the aggregate personal savings rate has increased since COVID-19 first reared its head in the beginning of 2020.
A preliminary estimate from the latest recordkeeper data showed that just 1.1% of DC plan participants stopped contributing to their plans in the first half of 2021. This compares with 2.0% of DC plan participants in the first half of 2020 and 4.6% in the first half of 2009, during the Great Recession.
However, 2.8% of DC plan participants ended up taking a withdrawal in the first half of 2021, compared with 2.8% in the first half of 2020 and 1.8% in the first half of 2009. ICI noted that these withdrawals did not include any coronavirus-related distributions (CRDs) that the participants took. Recordkeepers identified 2.9% of DC plan participants taking CRDs in the first half of 2020.
ICI also found that fewer DC plan participants changed asset allocations of their contributions in the first half of 2021 (4.5%) compared to the first half of 2020 (5.0%) and the first half of 2009 (9.3%). ICI cited rising stock values during the first six months of 2021 as being the main reason why DC plan participants generally stayed the course in their asset allocations.
In addition, loan activity of DC plan participants fell during the second quarter of 2021.
“At the end of June 2021, 13.5 percent of DC plan participants had loans outstanding, compared with 14.3 percent at the end of March 2021 and 14.8 percent at year-end 2020,” an ICI press release said.
Thomas Hum is a writer at Yahoo Finance. Follow him on Twitter: @thomashumTV
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