A well-funded 401(k) might look like a life preserver to retirement plan participants who are struggling to stay afloat amid the coronavirus pandemic, but a bailout now could put their future on the rocks.
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Spencer Williams, president and CEO of Retirement Clearinghouse, acknowledged that in the current economic situation, many retirement plan participants have serious financial concerns.
“There’s just no doubt, particularly in these times, folks need access to money,” he said. “People are getting laid off, and like many things, it’s that part of the population that is most vulnerable that gets laid off first.”
Williams encourages retirement plan advisors to put up “speed bumps” to give them a way to intervene when participants are about to make a decision that could hurt them.
“When someone wants to cash out, we actually make them talk to someone,” he explained. “Those service representatives sort of make people think twice.”
Whether they’re providing advice virtually or through educational materials, advisors need to help participants put their immediate financial needs into context.
“If somebody needs the money, they need the money,” Williams said. “Just make sure it’s a real emergency.”
Participant education should focus on exploring other sources of income first: other savings, credit cards or loans, Williams said.
Then, getting participants to think rationally about what they actually need, not what they’re afraid they might need, can minimize the impact on their retirement accounts if they do have to dip into them.
“If you have $10,000 in your 401(k), but you only need $2,000, take $2,000. Don’t take $10,000,” he stressed.
Younger participants who will benefit the most from interest accumulation will be especially glad they didn’t take panic distributions from their retirement accounts.
“Every dollar that disappears now, particularly for a younger person, it’s worth $5 or $10 when they’re 65,” Williams said.
Translating that lost income into real dollars can have a profound influence on participants’ decision making.
“We actually project for the individual on the spot how much money they’re giving away,” Williams said.
That strategy appears to be working for Retirement Clearinghouse. “We’ve seen no appreciable change in activity,” Williams said. “If anything, the call volumes are a little lower than they usually are, which is good sign.”
Danielle Andrus works as an editor for The Financial Planning Association® (FPA®). Over the past 15 years, she has worked in various capacities, including writing and editing. Andrus has worked for several notable publications and outlets and spent more than seven years as the executive managing editor at ALM Media, publisher of Investment Advisor magazine and ThinkAdvisor.com. Before that, she was online editor for Summit Professional Networks, where she oversaw newsletter development for four magazines, including Benefits Selling, Senior Market Advisor, Boomer Market Advisor, and Bank Advisor.
