Being confident about the journey to long-term financial security just got a little tougher for many 401k plan participants. Many workers are afraid, and they are looking for help through the rough patch of road ahead.
Being their “emotional seatbelt”
This is one of those moments where retirement advisors can play a critical role as the “emotional seatbelt” for plan participants. Through education and engagement, advisors can help protect participants (and their nest eggs) from panic—by keeping them focused on their goals and their long-term plans.
For participants, it’s all about taking a thoughtful approach. In times like these, many participants are forced to strike a balance between short-term needs (like paying bills) and risks (such as potential job loss) alongside the need to remain on track to attain long-term savings and retirement goals. Taking a thoughtful approach involves taking into consideration all assets, liabilities, and expenses before changing goals or deviating from the long-term plan.
Buckle up: 8 key tips for participants to consider
While TikTok videos, Tiger King, and comfort food may be a welcome distraction from the storm, there are several important points we can all keep in mind as we develop our participant education plans. We can help them buckle up for the road ahead by considering one, or all, of the following ideas:
- Budget. For participants with extra time on their hands, this may be that once-in-a-lifetime opportunity to devote some time to developing a budget. This might be the best place to start before considering other ideas.
- Understand cash needs and access to cash. This is an important moment for participants to be reviewing all their assets and credit sources. They need to thoughtfully determine where they would go first (and last) if they needed to access cash to support short-term needs.
- CARES Act. The retirement-focused provisions of the CARES Act just made it easier to access retirement funds, so participants may want to keep contributing, even if they need to access those funds later.
- Keep contributing. For participants who feel like they may need to suspend their contributions to defined contribution plans or IRAs, they might want to consider a reduced contribution (At the least, they should try to keep contributions at a level where they can still take advantage of employer matches, where available.)
- Low interest rates. Given pervasive low interest rates, it may be a good time for participants to consider consolidating or refinancing debt in order to reduce costs and/reduce actual payment amounts.
- Expenses. It may be a good time for participants to consider reducing fixed expenses now. Is it time to cut the cable?
- Upside opportunities. For participants with liquid funds to invest, there may be some once-in-a-lifetime opportunities out there.
- Portfolio review. It may also be a great time to review, and potentially adjust, asset allocations.
You don’t have to drive this alone
As financial professionals, you know the math says taking money out of a retirement plan isn’t always the best choice. But as we see people, business and communities being impacted in such an unprecedented way, it’s important for us to continue bringing value and empathy to the table to help people make the best possible choice for them.
Managing through volatility, managing debt and health care costs, education funding and preparing a will or healthcare directive are all valuable conversations you may want to have with customers right now. At Principal, we’ve developed a COVID-19 resource hub to bring these and other relevant education topics together in one place.
People need an emotional seatbelt right now and advisors are critical to helping 401k participants make sense of a new reality. The work you’re doing helps ensure people stay focused on their goals and stick to their long-term plan.
Jerry Patterson is senior vice president of retirement and income solutions at Des Moines, Iowa-based Principal Financial Group.
Jerry Patterson is Senior Vice President of Retirement and Income Solutions at Des Moines, Iowa-based Principal Financial Group.
