Many 401(k) retirement plans allow participants to take loans from their accounts before they retire. However, if they have not paid them off before leaving their jobs, they must pay them in full immediately. Based on a large dataset from Vanguard, this study is the first of its kind to quantify how many people take out loans and, of those, how many default. It proposes changes in retirement policy to reduce the financial risk posed by these loans, particularly for vulnerable groups.
This issue of Insight summarizes research conducted within the Financial Literacy Center.
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