One of my (many) favorite quotes is, “Learn from the mistakes of others. You can’t
live long enough to make them all yourself.” [1]
Over the decades I’ve certainly made my share
of mistakes! But during five years as a community
college personal finance instructor, and as counselor with several thousand
in-person sessions under my belt (including 1,000 or so for bankruptcy), I’ve
also had uncommon opportunities to learn from the mistakes of others.
Certainly there are health emergencies or
sudden and extreme reductions in income (sometimes both) that necessitate an
in-service hardship withdrawal from a defined contribution plan.
My observation is that a more common scenario
involves not an isolated financial event, rather a multi-year pattern of
deficit spending. In other words,
Americans - month after month and year after year - spend more than they earn.
Let’s say that you have 200 employees
participating in a retirement plan, and over a 12-month period eight of them make
an emergency withdrawal of, say, $10,000.
Two of these individuals later learn that the cash influx provided
emotional relief only for the moment, but the core financial behaviors were
unchanged and later file for bankruptcy protection.
So $20,000 that might have been protected in
bankruptcy is gone forever.
SHRM, NFCC, FCAA, NACBA members – has this been your experience? How much does this affect the future value of an individual's savings?
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[1]
Contributed anonymously to a 1948 The
Weekly Underwriter; later attributed to Martin Vanbee, Eleanor Roosevelt,
and others.
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