April 11, 2013 (PLANSPONSOR.com) - There was a 28% increase in the number of participants taking loans from their 401(k)s, according to an analysis of Wells Fargo-administered plans.
Average new loan balances increased to $7,126 from those taken out in the fourth quarter of 2011—a 7% increase from $6,662.
Of the participants who took out loans, the greatest percentage were people in their 50s (34.2%), followed by those in their 60s (28.9%) and those in their 40s (27.3%). The increase among participants in their 50s was nearly double the increase among those younger than 30. This is based on an analysis of a subset of 1.9 million eligible participants in retirement plans that Wells Fargo administers.
“The increased loan activity particularly among older participants is concerning because those are the years when workers can start to make ‘catch-up’ contributions and really need to focus on preparing for retirement,” said Laurie Nordquist, director of Wells Fargo Retirement. “However, we know that this age is also the ‘sandwich’ generation, caught between paying for their kids’ education and supporting elderly parents, which makes saving for retirement even more challenging.” According to the Wells Fargo data, nearly one fifth (19.2%) of people with money in a 401(k) plan had at least one outstanding loan, and of the outstanding loans, the average balance was $7,764. While older participants are taking more loans out than their younger colleagues, the younger a participant is, the greater the loan tends to be as a percentage of their 401(k) account balance.