Anne Lester, managing director and senior portfolio manager for the global multi-asset group of JPMorgan Asset Management, recently co-wrote a report on market volatility and its impact on 401(k) participants' savings patterns. Here are some insights from the study and a few practical tips, which she shared in an interview with Research.
What can advisors do to help clients avoid borrowing from 401(k) plans?Today many people thought they had the ability to tap into credit. But it's turning out not to be the case, and, given current conditions, it is a problem many are struggling with.
That means advisors need to work with clients to help them have adequate cash on hand and the appropriate financial-planning strategies in place for both short- and long-term needs.
Also, it's important for advisors and clients to think about and discuss the consequences of 401(k) loans on the retirement income in the future. As we explain in our report, the impact of participants' loans and withdrawals during this current period of market volatility is expected to become even more significant over time.
For example, participants now borrowing from plans during the current market downturn are selling assets at depressed values to fund the withdrawals. As a result, when the markets begin to rally at some point, participants are likely to be partially out of the market during the most crucial years for building capital and will be forced to save more than they removed to get back to where they started in the first place.
What other strategies should advisors work on with clients?The most important thing is for participants to keep up contributions, which are sometimes cut when loans are being paid back. This is a bit like robbing Peter to pay Paul.
