Cash-Strapped Americans Increasingly Tap Savings, Retirement Accounts


  • The U.S. savings rate has plunged, and 401(k) accounts have declined as loans and hardship withdrawals exacerbate market losses.
  • With interest rates rising, consumers appear less likely to borrow money in 2023.
  • As a result, the recent decline in consumer spending may persist.

Last year, the highest U.S. inflation in 40 years had an entirely unsurprising effect: shrinking the amount of cash in Americans’ pockets—and portending challenges for consumer spending in 2023.

From tapping their savings to dipping into their retirement accounts, Americans increasingly scrambled for money as the cost of living soared and the Federal Reserve’s interest rate hikes, designed to lower inflation, raised borrowing costs.

Nearly half of Americans said they have less savings than they did a year ago, according to a recent Quinnipiac University poll. As cash savings fell, so did retirement accounts: The number of 401(k) retirement participants taking out loans from their plans increased by 13% in the past 12 months, and hardship withdrawals rose 24%.

The 401(k) withdrawals occurred at a time investors were already enduring other financial pain.

The U.S. stock market lost a fifth of its value in 2022. Average balances in 401(k)s run by retirement account provider Fidelity Investments totaled $97,200 at the end of the third quarter, down 23% from 12 months earlier.

Precarious Position

The Fed took another step in its march against inflation Wednesday, raising its benchmark rate 25 basis points, making the 4.5% to 4.75% range the highest level since late 2007. The central bank has made progress in its fight, as key measures of inflation have fallen since the middle of last year.

Nonetheless, rising inflation and higher interest rates have left Americans in a much more precarious financial position than they were just two years ago. Wage growth has lagged behind inflation, leaving workers with less buying power.

Americans have all but stopped saving money. The personal savings rate reached a historic high of 34% during the height of the pandemic in April 2020. It since has plunged to 3.4%.

The Fed’s rates hikes could spark a recession, but the U.S. jobs market has remained resilient, helping cushion the impact of falling stock and bond prices and a weakening economy.

How Consumers Might React in 2023

As pocketbooks lighten, consumers will likely have to tighten. In fact, they already have.

Last year, consumers bought fewer existing homes and fewer new cars and trucks, respectively, than they had since 2014 and 2011. Overall consumer spending fell in the last two months of the year.

That trend likely will persist as higher interest rates cause potential borrowers to think twice. Credit reporting firm TransUnion forecasts consumers in 2023 will take out fewer personal loans and mortgages than they did last year.

At the same time, they’ll likely access their existing home equity to a greater degree for additional cash, and the firm expects credit card delinquencies will rise to the highest level since 2010, in the wake of the global financial crisis.

Reasons for Hope—Or Not?

Still, hope exists that consumers will endure in 2023.

Credit card giant Mastercard last week cited solid consumer spending as a key reason for its higher-than-expected, fourth-quarter earnings and predicted it would continue this year. In addition, Al Kelly, CEO of rival Visa, told CNBC that the U.S. consumer spending shows signs of “boring stability” after the company likewise reported higher-than-expected, fourth-quarter earnings.

However, even Visa’s own monthly Spending Momentum Index reveals U.S. consumers have gotten considerably more skittish. The index fell eight times on a month-to-month basis in 2022 and ended the year down 30% from its all-time high just 20 months earlier, in April 2021.

Moreover, the index rose just slightly from November, when it reached its lowest level ever outside of March-May 2020 when pandemic closures halted much of the U.S. economy.