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Sunday, May 31, 2020

A Hater CARES Maybe Too Much While Swimming with the Sharks

I watched an old Shark Tank segment the other day.  The guy with the Hater dating app, in chronicling his path, noted how, among the things he did, he raided the money put away for his retirement, saying: "I liquidated my 401(k)".  Maybe he even paid early-withdrawal penalties.  Predictably, the Sharks fell all over themselves with admiration and adulation, maybe even adoration.  

For the record, I think the show is great and maybe often amazing, but here I think the message is a wrong-headed and dangerous one.  Is the idea to people that taking a flier with retirement assets is somehow a good, wise thing?  And is this entrepreneur's success somehow a validation of this rash and patently inadvisable approach?  Reminds me of the resource-constrained person who spends untold sums on lottery tickets and then wins, and who says, "See, I was right all along."  Oh, and, by the way, maybe not everyone can navigate such a self-imposed gauntlet as well as a Brown graduate with a Goldman pedigree.  Sheeeeesh.  

Guess what?  There's a reason that the rules encourage saving for retirement.  The money is there for when salary and other income is no longer coming in.  The thought of retirement funds being unavailable at a time when there are no other visible means of support is a potentially devastating and frightening one.  Thus the incredibly large tax subsidy for retirement programs, not to mention the associated comprehensive statutory scheme that may well be unsurpassed in its reach and complexity.  "Sure, go ahead, and put your 401(k) at risk.  Hope you guess right, like I did.  If not, hope you can eat when you're older."

This whole kerfuffle brings me back to one of the statutory responses to the COVID19 pandemic.  Under the CARES Act, there is dramatically increased access to retirement funds, through the mechanism of penalty waivers, tax relief and loan expansion.*  Surely, this is well-intended, with Congress's heart being in the right place, but I worry greatly about hurting people with kindness.  The effect of facilitating access to retirement money now is, of necessity, to eliminate its presence later, when it may most be needed.  Maybe there will be real suffering in the current environment, but if people access their retirement money now and then don't have later it when no new income is coming in - well, what then?  The Law of Unintended Consequences can be a real drag.**  I would submit that employers should be very thoughtful and contemplative (CARE(S)ful?) before choosing to amend their plans to facilitate access for their employees.

Indeed, the CARES Act itself does have a contrary tilt, as well.  Standing in contrast to the provisions facilitating access is a provision suspending RMDs and even allowing certain repayments thereof.  Now THERE's a good idea!

Be safe and be well, all, during these crazy, craaaazy, craaaaaaaazy times . . . 

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* I want to vent about loans here for a moment.  People have the view along the lines of, "Hey, this is great.  I'll take a loan and I'm just paying myself back.  What a great deal."  But the insidious nature of this access, it turns out, is that the money loses its tax-preferred status while borrowed, and may ultimately come completely out of the retirement system if there's a default. 

** I'm reminded of when Obama and McCain were running against each other, and agreeing on almost nothing.  One proposal was to loosen up access to retirement funds to help deal with the financial crisis.  Both candidates supported the idea.  Imagine that!  Clearly, the loosening up was going to happen, right?  Well, it turns out, Obama won and you basically never heard the proposal again.  I can only imagine the policymakers telling our new President what a dangerous and potentially bad idea this was, notwithstanding its visceral appeal.  Anyway, went this supposedly wonderful, agreed-upon proposal.  

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