Sometimes life happens

If Marco Rubio proved nothing else recently when he told a TV interviewer that he had cashed out a $68,000 401(k) account, it’s that he’s (a) not very wealthy, (b) not very bright, or (c) not unlike most middle-class Americans.

While a case could be made for (a) or (b), the correct answer is (c). Here’s why.

In explaining that he raided his 401(k) plan to buy a refrigerator and an air conditioner, as well as to cover some college costs for his children and pay campaign expenses, the U.S. senator from Florida and GOP presidential candidate acknowledged an unpleasant fact: Despite the best efforts of middle-class Americans to save for retirement, life gets in the way.

RETIREMENT ACCOUNT RAID

Unfortunately, many middle-class Americans aren’t saving enough for retirement and some, like Mr. Rubio, even pull money out of their retirement plan prematurely. Advisers are quick to point out the error of their ways: Taxes have to be paid on the amount withdrawn early from a 401(k) account, probably at a rate higher than what the taxpayer would pay at the time of retirement. Along with the taxes, a 10% penalty is incurred.

In last week’s issue of InvestmentNews, the same one that carried the story of Mr. Rubio, another article appeared about a professor of finance at the University of Pennsylvania’s Wharton School urging advisers to reinforce to their clients that retirement must be their No. 1 savings priority, ahead of college, recreation or any other goal.

Of course, that’s fine if your clients are wealthy, but most Americans have finite financial resources and are forced to make difficult decisions when it comes to saving money. Not everyone can fully fund 529 college plans, 401(k) plans, health savings accounts and long-term care insurance policies all at the same time. In many cases, a child’s education or an aging parent’s health needs are going to trump a retirement fund. Is that so wrong?

What we are urging is a little perspective. Yes, retirement is important, but so are other financial goals. After all, finding out what’s truly important to a client is part of an adviser’s job. Advisers need to strike a balance. Give your clients the benefit of your counsel. Outline their options. But ultimately, try to support their decisions, even if you don’t always agree with them.