401k Employee Education Should Convey There is Never a Good Reason to “Steal” from a 401(k) Plan
401k employee education needs support from the media. I came across this gem of an article recently from WFMY2 News in Greensboro, NC. The very short article eventually gets around to explaining it’s a bad idea to take money out of your 401(k) and you should leave it there for retirement, but in my opinion, it’s basically sensational click-bait that does nothing to further the mission of educating workers on the importance of leaving their savings untouched for their post-career years.
The headline alone strikes this author as being a bit ridiculous: “What’s a good reason to rob from your 401(k)?” Now, granted, the verb “rob” might indicate that WFMY NEWS reporters recognize that there’s NEVER a good reason for anyone to use their savings for anything other than living comfortably in retirement. That said, the idea seems to prompt readers to think, “well, there might be a good reason why it is acceptable to steal the money in my 401(k) — let me keep reading.” This flys-in-the-face of providing quality 401k employee education.
After reading the article title, it is starting to feel, as though it’s all about the clicks, folks. It gets better. These are the first two paragraphs of the seven-paragraph article:
“You have a pot of money. It’s just sitting there. It’s called your 401K. It’s your retirement savings. But couldn’t it also be: a way to help to pay for college, fix up the house, that bucket list vacation that would finally bring all your family together?!?!?”
“The short answer is yes, but not without paying a penalty.”
“Think it through,” says Certified Financial Planner Matt Logan. ‘Don’t just jump to take money out of it because it does impact long-term retirement opportunities.’”
Granted, WFMY NEWS points out early on — with a quote from a financial planning expert — that it may not be such a good idea for someone to tap their savings before retirement, and that there are penalties and long-term consequences for doing so, but in my opinion, it doesn’t really drive the point home. Let’s look at the verbiage: “pot of money… just sitting there… bucket list vacation…” It’s designed to be evocative. Beyond that, the article itself is extremely superficial, and it seems rather tongue-in-cheek. While it does circuitously address the drawbacks of withdrawing retirement funds early, the tone seems flighty and basic, which makes it hard to take the message seriously.
It is precisely this kind of media hype that makes it challenging for the retirement industry, and particularly plan sponsors, to help workers understand that it’s never, a good idea to use retirement savings account like a bank. This is a far cry from 401k employee education. Articles like this plant the seed that perhaps it is, in fact, okay to use one’s retirement savings to pay for college tuition, home repairs or a dream vacation. Why not? The money’s just sitting there. That’s the message anyway. And who cares about penalties? It’s not like employees are doing jail time for using their savings early. There aren’t really any severe consequences, at least not today, anyway. And most people don’t care about what will happen 20 or 30 years from now. They’re just concerned about today and meeting their financial needs in the present moment. We live in an instant-gratification society, and the idea that it is possible to use the money we are saving for the future right now is all too tempting.
In short, we need to redouble our efforts to help employees understand that their retirement savings aren’t a piggy bank they can beg, borrow or steal from on a whim. They need honest 401k employee education to truly internalize that there are very real, long-lasting, consequences for using retirement funds money before the appropriate time. Whether it’s showing employees that borrowing even just $5,000 today means they lose out on multiples of that in investment earnings and compound interest over the course of two or three decades, or if it is spelling out for them, in no uncertain terms, the penalties of withdrawing the money early (or both), we need to spread the word early and often.
There is a difference between a real financial hardship and a self-imposed one. The WFMY NEWS article does address this important point – reminding retirement plan participants that taking funds out of their retirement savings is an absolute last resort.
We need to remember — we hire smart, capable employees who are good at the jobs. Unfortunately, not every employee can manage their finances and retirement savings. We need to do a better job of making sure we are providing financial guidance where it’s needed, which may be a lot more often, and in a lot more places than we have in the past. We also must do a better job at clarifying confusing or misleading messaging, so employees get true 401k employee education, the whole, the real story about draining their retirement accounts early, and not just the headlines designed to attract more clicks.
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