Millions of U.S. workers have admitted to withdrawing or borrowing money from their retirement plans, an action made easier by the CARES Act, but most who did so (55%) now regret it, according to research by Edelman Financial Engines.
Indeed, actions detrimental to employees’ long-term financial security, taken due to the pandemic, increased 50% since April, the company’s research shows. Nearly half of those actions (45%) directly harmed retirement accounts (e.g. changing portfolio allocations, reducing savings rates, and borrowing from their plan), while 30% increased outstanding debt and 21% reduced or depleted emergency savings.
The study found a high prevalence of early retirement account access, with nearly 1 in 3 workers (28%) having previously accessed funds from their retirement plan. Of those, 43% have done so multiple times. Covid-19 is accelerating this trend, with 1 in 5 workers (16%) currently considering early access, and almost half (46%) saying the primary reason is related to the pandemic.
Troubling trend
“It’s troubling that so many Americans are turning to their retirement accounts for expenses unrelated to retirement, and that most are going to do it again,” Ric Edelman, the firm’s founder, said in a statement. “Their actions will harm their ability to achieve financial security in retirement.”
Borrowing from a 401(k) can be a life-changing decision, but workers often lack the resources to make good decisions. Four in five (81%) say they could have benefited by talking with a financial advisor before taking the loan.
“Employers can help reduce their workers’ financial stress and improve their retirement outcomes by providing them access to financial advice,” added Kelly O’Donnell, Executive Vice President at Edelman Financial Engines and head of the firm’s workplace business. “It’s easy and cost-effective to implement.”
Edelman Financial Engines conducted a survey of 1,902 U.S.-based retirement plan participants in August and September to understand the behavior of people who withdraw or borrow from their retirement funds early.
THE FULL REPORT CAN BE FOUND HERE
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
