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More Americans are taking money out of their retirement savings: Report

Yahoo Finance Live's Dave Briggs and Sean Smith look at U.S. consumer trends as more Americans are tapping into their retirement savings amid elevated inflation.

Video transcript

SEANA SMITH: All right, well, more Americans are taking cash out of their retirement accounts. That's according to a new "Wall Street Journal" report. Vanguard Group saying that 2.8% of its 401(k) customers have withdrawn money last year. That's up from 2.1% the year before and 2% before the pandemic. Stubborn inflation has many households really feeling the pinch and struggling to cope with hardships and even regular expenses.

DAVE BRIGGS: Retail purchases have fallen three out of the past four months and spending on services were flat last month. Personal savings have plummeted from their pandemic highs, dropping to 3.4% of monthly income in December. That is down dramatically from 7.5% a year earlier.

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With consumer spending being the backbone of the American economy, it's not looking good for those hoping for a so-called soft landing. I'm going to hold out hope, but that initial number that you discussed, 401(k)'s continuing the last two years to dramatically increase, it is twofold reasons. Now, we did loosen up the rules and regulations surrounding that withdrawal process in 2018. It is easier now.

But still, largely speaking, you're going to pay your taxes and you're going to pay a 10% penalty. If you are under 59 and 1/2. But people are now pulling out their 401(k)'s foreclosures, to avoid foreclosures, for medical procedures, to pay tuition. That number is greatly concerning when it comes to the overall health of this economy-- as concerning, I think, as that personal savings number-- 3.4%, almost half of what it was a year prior.

SEANA SMITH: Yes, 3.4% of American saving-- Americans are saving 3.4% of their monthly income. Really just illustrates the fact that not many people have the extra cash around. They really are closely living paycheck to paycheck. And we just heard from Kevin Mahn earlier in the show talking about inflation and how he expects it to continue to take a bite out of the consumer's wallet, continues to think that consumers will be paying higher prices now for quite some time because he doesn't expect-- he's not confident that the Fed's going to be able to get that inflation rate back to 2%.

So certainly, consumers are in a tough spot right now. We talked about the fact that we are at risk of heading into a recession. So that whole scenario, the whole landscape right now for the consumer might not improve any time soon.

DAVE BRIGGS: Yeah, economists still tend to lean 60%, 70% towards a recession-- some type of mild recession this year. Although just about every earnings report we discuss, the CEO-- with I think the notable exception, remind me-- I mean, early on we talked about the big banks. And most of those CEOs said they do expect some type of mild recession.

But once we turned the page from the big banks, we've heard relatively nothing about predictions of recession. I think UPS did think they see one in the first half of '23, with a bounceback late in the year. But earnings report after earnings report shows the consumer is holding up better than some of these numbers would suggest, and especially when you look at the labor market-- 50-year low unemployment rate. And I'm guessing it's going to hold right in that range on Friday. I'm no economist, just judging by the earnings report, I think we get through it.

SEANA SMITH: Yeah, will be interesting to see how much power, though, a lot of these consumer-facing brands will have in the coming quarters because the fact that people are paying more and more. And we're starting to see some consumers resist higher prices. They simply aren't spending on some of those essentials that they had been spending on over the last several quarters, over the last two years because it simply is getting too much.

Some of these price hikes-- Procter & Gamble raising prices by, what, about 10% here? Not everyone can afford these types of prices on everyday items. So we will see, but you are right-- a number of CEOs have come out in their earnings reports saying that they are not seeing any signs of a recession within their business.

DAVE BRIGGS: McDonald's raised their prices 10% as well--

SEANA SMITH: And people were willing to pay that.

DAVE BRIGGS: Put up some big numbers.