Many applauded the recent CARES Act retirement provisions allowing employers to let employees borrow or withdraw more from their retirement plans. But others were, if not alarmed by workers going for the gusto and grabbing their funds, concerned.
Did offering the ability to take more loans require (morally or otherwise) an employer to provide some information about potential consequences? Would employees be hurting themselves more by taking advantage of the provisions? Would plans be drained by summer?
Principal Financial has attempted to shed some light on what actions retirement plan participants have taken and think they might take. Its recent study asked workers about their likelihood of tapping retirement or other funds during this time when people are experiencing financial loss.
Overall, 30% of workers said they don’t yet know if they’ll have to tap into their accounts; 43% said they think they will need to tap into their accounts. These are the accounts and the percentage of the 43% who would take advantage of those funds:
- Emergency savings: 15%
- Health Savings Account: 4%
- Individual retirement account: 13%
- Retirement account: 13%
- Stocks/investments: 6%
- Other: 2%
The results, like many things reported during this tumultuous year, are of their time — in this case, spring 2020. It seems likely these numbers could change depending on what happens during the rest of 2020.
4 Things Plan Participants Should Consider
Still, whether an employee is dead-set on taking out funds or still on the fence, removing retirement savings to meet financial needs now, even when absolutely necessary, is not an action to be taken lightly. Heather Winston, CFP, assistant director of advice and financial planning at Principal offered four things plan participants should consider:
1. Consider that this money is intended for an older you. “When we’re talking about retirement assets, it pays to wait. It’s a long-term commitment to your future self.”
2. Learn about the options first. “There are always long-term implications if you distribute your savings (taxes being just one of them). Educate yourself on available options, and how each of these options can impact your nest egg.”
3. Be specific in planning. “Unfortunately, none of us have a crystal ball to see the future – but you can be realistic, Focus your planning on the ‘why, how, and what’ to add discipline and rigor to your decision-making and goals, while removing emotion from the process, to be objective and pragmatic. Think through how much you may really need, not just what’s available. Even a simple list of your ‘must-haves’ will give you a clearer sense of what’s necessary so you can better manage through uncertainty.”