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'You want to be careful not to trade one set of challenges for another set of challenges': Schroders Head of Intermediary Distribution talks retirement savings

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The CARES Act is making it more accessible for Americans to tap into their retirement savings. Schroders Head of Intermediary Distribution Joel Schiffman joins Yahoo Finance’s On The Move to discuss how the CARES Act has been impacted by the COVID-19 pandemic.

Video Transcript

ADAM SHAPIRO: All of us are trying to figure out how to make ends meet during the COVID-19 crisis, and the CARES Act allows possibilities, but you gotta know what you're getting into if you're going to withdraw money from, say, a 401(k). To help us break this down, Joel Schiffman, Schroders head of intermediary distribution, is joining us to talk about some of the things that you can now do but with big red flags.

Joel, it's good to have you here. Going into this crisis, I think it was something like 40%, might have even been 60%, of Americans did not have the necessary savings to get them through two weeks without a paycheck. So that's when you would say, I really do need to head to my 401(k), right?

JOEL SCHIFFMAN: That's-- good morning, Adam. It's great to be with you. Yes, many people, over half, did not have enough savings put aside. But I think-- to start off, I think an important thing to think about here is this is a gentle thing. You want to be careful not to trade one set of challenges for another set of challenges, right? So the way I think about it is you're talking about potentially accessing your retirement assets, which are geared for retirement to provide secure income, in order to get by in today, right?

You take a step back, there are over 22 million Americans today that have applied for unemployment since the beginning of the pandemic. Most people are waiting for their checks, whether it's unemployment, $1,200, et cetera. And a month ago, they were sitting there going to work each day, being productive, and so forth.

And what they're thinking about today is, you know, how do I put food on the table? How do I pay my rent? How do I just get on with life? And it's a real challenge. And so even with the government checks, not having savings, it still might not be enough for some of the folks in order to just get by day to day.

JULIE HYMAN: Joel, it's Julie here. So for the people who do have retirement savings or a 401(k) or an IRA, what have you, the CARES Act did make some changes that will make it easier for people to pull their money out of those vehicles without penalties that typically exist. Can you explain to us what the best way to think about those vehicles it-- in what case should you tap into it, right? How dire does it have to be, and how did the CARES Act make it easier?

JOEL SCHIFFMAN: Julie, that's-- actually, you had several questions in there, so-- all great questions. But let's first break it down in sort of how do you think about accessing-- potentially accessing the assets inside of a retirement plan. So think of it as three broad categories. That's loans, hardship withdrawals, and required minimum distributions, right?

So in terms of loans, if the plan-- if your retirement plan permits, the CARES Act has doubled the participant loan limits. So you can now borrow 100% of your invested account balances up to $100,000. And importantly, for those that already have loans outstanding, you can now delay the repayment for up to a year, all right? So that's one aspect.

Another aspect is hardship withdrawals. And ordinarily, if you're going to take a hardship withdrawal and you're not age 59 and 1/2 or older, you'd be subject to a 10% penalty to do that. The government is waiving that for certain circumstances, and this applies both to qualified retirement plans, as well as IRAs.

So one of two scenarios have to be met. Either you, your spouse, or dependent must have been diagnosed with COVID-19, and/or you must have-- you, personally, must have experienced some adverse consequence from the COVID-19 economic downturn, such as a job loss, you got furloughed, you lost revenue from small business and the like. And really important to this is that you now have three years to pay income tax on what you withdraw, or you could just pay it back tax-free within three years.

So those are your options right now. But it's important to understand-- it's like, this is a fine line. It goes back to my opening statement whereby these are retirement assets. So you need to think about, what are my living expenses for whatever period of time, let's call it the next three years, call it short term. And this is living expenses versus luxury expenses. You don't want to just buy things. You want to just pay your rent, get on with life until such time as you get-- you have your feet back on the ground.

ADAM SHAPIRO: Joel, there are so many people who are deferring their mortgage payments. We see mortgages in forbearance of almost 6% where, in a normal environment, it'd be 0.25%. But the advice you give is very important and helpful. Joel Schiffman is Schroders head of intermediary distribution. We appreciate your joining us to help people understand some of the options they have to get through the COVID-19 crisis. We have more after this.