Pandemic & Planning

Pandemic Forces Financially Harmful Actions

More than half regret borrowing from their retirement funds

Research by Edelman Financial Engines reveals that employers and plan sponsors can help by providing financial advice via the workplace. Access complete study here.

SANTA CLARA, Calif.–(BUSINESS WIRE)–Millions of U.S. workers have admitted to withdrawing or borrowing money from their retirement plans, an action made easier by the CARES Act, but most who did so (55%) now regret it, according to research by Edelman Financial Engines.

Indeed, actions detrimental to employees’ long-term financial security, taken due to the pandemic, increased 50% since April, the company’s research shows. Nearly half of those actions (45%) directly harmed retirement accounts (e.g. changing portfolio allocations, reducing savings rates and borrowing from their plan), while 30% increased outstanding debt and 21% reduced or depleted emergency savings.

Edelman Financial Engines, the nation’s largest independent financial planning and investment advisor,1 conducted a survey of 1,902 U.S.-based retirement plan participants in August and September to understand the behavior of people who withdraw or borrow from their retirement funds early.

Negative Trends On The Rise

The study found a high prevalence of early retirement account access, with nearly 1 in 3 workers (28%) having previously accessed funds from their retirement plan. Of those, 43% have done so multiple times. Covid-19 is accelerating this trend, with 1 in 5 workers (16%) currently considering early access, and almost half (46%) saying the primary reason is related to the pandemic.

“It’s troubling that so many Americans are turning to their retirement accounts for expenses unrelated to retirement, and that most are going to do it again,” said Ric Edelman, the firm’s founder and three times named the nation’s #1 Independent Financial Advisor by Barron’s.2 “Their actions will harm their ability to achieve financial security in retirement.”

Borrowing from a 401(k) can be a life-changing decision, but workers often lack the resources to make good decisions. Four in five (81%) say they could have benefited by talking with a financial advisor before taking the loan.

“Employers can help reduce their workers’ financial stress and improve their retirement outcomes by providing them access to financial advice,” said Kelly O’Donnell, Executive Vice President at Edelman Financial Engines and head of the firm’s workplace business. “It’s easy and cost-effective to implement.”

It’s troubling that so many Americans are turning to their retirement accounts for expenses unrelated to retirement, and that most are going to do it again...

Employees Are Seeking Help from Their Employers

There is no reason for employers to hesitate in providing additional help to their workforce – employees want their employers to help them. Indeed, the 2nd issue in this series, Closing the Financial Advice Gap, showed that 84% of employees want this kind of help from their employers and 85% say a comprehensive financial benefit would help them become better prepared for retirement. Also, 81% of plan participants who borrowed from their future retirement income say talking to an advisor beforehand could have been helpful.

How Employers Can Help Their Employees

Borrowing from retirement funds is not just bad for employees. It’s bad for the plans themselves, as reduced account balances can increase plan costs. A variety of options to reduce the frequency and size of loans are available to employers and plan sponsors. They are summarized here and explained in detail later in this paper.

Policy and Process Solutions

  • Modify loan limits and qualification criteria, including re-evaluation of the CARES Act.
  • Introduce more stringent requirements for borrowing retirement funds, including mandatory counseling prior to obtaining loans and extended waiting periods between loans.
  • Engage your recordkeeper and managed account provider for a multi-pronged plan to review leakage activity, determine at-risk participants, and develop targeted mitigation plans.

Product Solutions

  • Offer an employer-sponsored, personal finance education program, covering every subject from credit and debt to estate planning, and curated for the needs of your workforce and designed to best meet a fiduciary standard of care.
  • Give employees considering a loan or hardship withdrawal access to financial advisors and coaches (who serve as fiduciaries), to help understand the implications of accessing their retirement funds prematurely and learn about less-detrimental options.
  • Enroll employees with existing loans into an education program focused on preventing additional borrowing and accelerating repayment of current loans.

Please click here to view the full report.



About Edelman Financial Engines
Since 1986, Edelman Financial Engines has been committed to always acting in the best interest of our clients. We were founded on the belief that all American investors – not just the wealthy – deserve access to personalized, comprehensive financial planning and investment advice. Today, we are America’s top independent financial planning and investment advisor, recognized by both InvestmentNews3 and Barron’s4 with 150+ planner offices across the country and entrusted by more than 1.2 million clients to manage more than $220 billion in assets.5 Our unique approach to serving clients combines our advanced methodology and proprietary technology with the attention of a dedicated personal financial planner. Every client’s situation and goals are unique, and the powerful fusion of high-tech and high-touch allows Edelman Financial Engines to deliver the personal plan and financial confidence that everyone deserves.
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[1] Ranking and status for 2020. For independence methodology and ranking, see InvestmentNews Center (
[2] Rankings for 2009, 2010 and 2012. Barron’s ranking has three major components: assets managed, revenue produced and quality of the advisor’s practice. Does not assess investment returns. Quality-of-practice component includes advisor regulatory record. Rankings based on universe of applications submitted through self-nomination to Barron’s.
[3] Ranking and status for 2020. For independence methodology and ranking, see InvestmentNews Center (
[4] The 2020 Top 100 Independent Advisory Firm Ranking issued by Barron’s is qualitative and quantitative, including assets managed, the size and experience of teams, and the regulatory records of the advisers and firms. Firms elect to participate, but do not pay to be included in the ranking. Investor returns/experience are not considered.
[5] As of June 30, 2020.