Dear Garden State Trust:
I’m going to buy a new car. Can I borrow money from my 401(k) plan for this purpose?
Dear Trading Up:
If you do borrow from your 401(k), you will have lots of company. According to a new national survey from the Profit Sharing Council of America, 25.8% of plan participants had loans outstanding in the most recent reporting year (2016), a level that has held fairly steady over the last ten years. The average reported loan per borrower has fallen somewhat in recent years, now standing at $8,042.
Whether your plan administrator will approve a loan for a new car is an open question. Generally, such loans are supposed to be for sudden, unexpected financial needs. Still, the requirements for granting a loan are usually less stringent than for plan withdrawals. Years ago one plan administrator told us that the number one reason for granting participant loan requests should be “because they asked for it—it’s their money, after all.”
Just because you can do it does not make it a good idea. When you borrow money from your 401(k) account, you have less money in the market, growing to meet your retirement needs. That deficit can be hard to overcome in future years. Most financial advisors recommend that borrowing from a 401(k) account to meet current ordinary expenses (such as a car) should be a last resort.
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The winter is finally over, and with spring comes new fragrances and pollens outside. To fully embrace the new season, some decide to clean their homes inside as well, moving everything and doing a full clean and assessment of what should be kept or thrown out.
We collect treasures over our lifetimes that represent memories, and letting go of those treasures can be hard.
A recent article from the Journal of Gerontology: Series B, titled “The Material Convoy after 50” discusses how people divest themselves of possessions as they age. The article can be found here.
David J. Ekerdt and Lindsey A. Baker through analysis of data from a national panel conclude that “After age 50, people are progressively less likely to divest themselves of belongings. After age 70, about 30% of persons say that they have done nothing in the past year to clean out, give away, or donate things, and over 80% have sold nothing.”
Although the authors suggest that with a larger set of possessions, “their continued keeping can be a predicament for oneself and others,” they explore many reasons why less is divested as we age. The reasons they bring up that we find compelling are:
- The longer we live, the more possessions we accumulate that signify our identity and “The ongoing collection of belongings can secure continuity of the self in the face of aging and vulnerability.”
- As we age, we feel less up to the task of assessing value and divesting where there isn’t any: “a major reason for less possession management is the rising risk of poor health at older ages that can limit the capacity to carry out the cognitive, physical, social, and emotional tasks of divestment.”
- We’ve divested already: “Most obviously, people may have already divested (perhaps by having moved) and so are content with their collection of belongings.”
At Garden State Trust Company, we deal with inter-generational wealth transfer and help people make the transition easier for their beneficiaries. Here are some questions to consider when you’re deciding if something should be kept for a beneficiary:
In regard to pragmatic value: Have I used this possession in the last five years? Would any of my beneficiaries use this possession, or do they have something already that replicates it’s use they prefer?