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Americans are saving more for retirement, but they’re nowhere near the ‘magic number’

Americans are saving more money for retirement than ever before, but they’re still nowhere near the “magic number” needed to retire comfortably.

The average balance is Employer contributions to retirement benefits Plans for 2023 rose to $134,128, a 19% increase from last year. data The Vanguard Group, which tracks about 5 million retirement accounts, released the figures. The median account balance was $35,286, up 29% from 2022.

Vanguard said the strong increase in account balances was due to stronger stock and bond markets, as well as continued contributions throughout the year.

Despite the surge, the account balance is still far short of the $1.46 million Americans need to have saved. Retire in ComfortAccording to a recent survey released by Northwestern Mutual.

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A stack of retirement account statements, photographed with shallow depth of field. (iStock/iStock)

The figure represents an increase of about 15% from the $1.27 million Americans need by 2023, and easily outpaces the U.S.’s current inflation rate of 3.3%. Over the past five years, Americans’ “magic number” has jumped 53% from the $951,000 reported in 2020, according to the financial services company.

The Vanguard report also pointed to other signs of financial hardship among households: As inflation rages, more Americans are dipping into their retirement accounts to cover financial emergencies.

About 3.6% of workers participating in employer-sponsored 401(k) plans made so-called “hardship” withdrawals in 2022, according to the report. That’s up sharply from 2.8% the year before and an average of about 2% before the pandemic. It’s the highest level of hardship withdrawals since Vanguard began tracking the data in 2004.

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Hardship withdrawals allow workers to withdraw money from their 401(k) if they have an “urgent and significant financial need.”

401k pension retirement

A retired couple walking arm in arm along the beach. (Annette Riedl/Photo Alliance via Getty Images/Getty Images)

The individuals making such withdrawals Pay income tax Workers may be subject to a 10% early withdrawal fee on the money, and a 10% early withdrawal fee if they are under age 59 1/2. However, this penalty may be waived if the worker satisfactorily demonstrates that the money is being used for a qualified hardship, such as medical expenses.

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People who make hardship withdrawals can’t pay the money back into their 401(k) or transfer the money to another retirement savings account.

About 40% of people who dipped into their 401(k) plans last year did so to avoid garnishment, up from about 36% in 2022, according to the report.

The reason why more and more workers are using their 401(k)s in emergencies is because High Inflation Rapidly eroding purchasing power. High inflation Severe financial pressures Most American families are forced to pay too much for everyday necessities like food and rent, a burden that falls disproportionately on lower-income Americans whose already tight paychecks are more vulnerable to price fluctuations.