Billions of dollars are leaking from 401(k) plans every year, draining millions of Americans' retirement savings and potentially delaying their retirements by years. It's an opportunity for financial advisors to grab a metaphorical pipe wrench and play plumber to stem the leak and protect workers' retirements.
The Pension Research Council (PRC) at the Wharton School, University of Pennsylvania reports that one in 10 401(k) plan loans wind up in default, sucking $6 billion a year from defined contribution plans (Borrowing from the Future:401(k) Plan Loans and Loan Defaults, Pension Research Council, Wharton School, University of Pennsylvania). Often, the unpaid loans are by employees who have tight financial circumstances and lack liquidity options to address financial emergencies.
Many middle-income workers – those with annual household incomes of between $35,000 and $150,000 – struggle to deal with financial emergencies, according to the 2017 MassMutual Middle America Financial Security Study. Often, the choices they make are harmful from a long-term financial perspective.
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