Five Reasons Retirees Should Stay in Their 401(k) Plans

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It’s important to weigh the costs and benefits associated with remaining in a former employer’s retirement plan.

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This is a notable change from a decade or more ago, where employers primarily viewed 401(k) plans as a way for their employees to “retire” and generally weren’t concerned about that. Whether or not the participant stayed in the “through retirement” plan. Employers have increasingly realized that they can play an important role in helping their employees achieve better results in retirement and while doing so, reap the benefits of increased scale (and better pricing).

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While each person’s situation is different, there are several unique benefits associated with living in a 401(k) plan—that may not be available if you roll the money into an individual retirement account. The decision to roll out is particularly important because it is effectively irreversible; Once you go off the plan there is no turning back. Therefore, it is important to weigh the costs and benefits correctly.

With that in mind, here are five reasons why you might want to stick with your 401(k) in retirement:

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1. Unique Investments: There are many investments that are not available in an IRA and can cost significantly less inside 401(k) plans. For example, fixed-value funds are available in most large 401(k) plans, but not at all in IRAs. These funds have historically had short-term bond-like returns with liquidity-like risks. Additionally, given the large size of 401(k) plans (many exceed $1 billion in total plan assets) they often have access to more alternative-investment strategies at lower costs than IRAs (such as private real estate). ) may be available. ,

2. Low Cost: Larger 401(k) plans are usually priced competitively, with all fees averaging 0.5% or less. Meanwhile, the expenses for an IRA can vary greatly from nearly free to annual asset-based annuity of more than 2% a year, depending on the investments and services offered. While smaller plans tend to cost more, it’s important to have a good understanding of the fees associated with your plan before making a decision, as they may be less (or more) than you think.

3. Access to Advice: 401(k) plans offer a variety of ways for participants to receive guidance or advice at little and no cost. This can include in-person face-to-face meetings as well as access to various online (robo) tools. These services are also available with an IRA, but may cost more because 401(k) plans are able to offer them on a much larger scale.

4. Fiduciary Presence: 401(k)s typically require a fiduciary to be present to manage the plan. Fiduciaries are individuals or organizations that have to put the interests of their customers ahead of their own. While many financial advisors who manage IRAs act as fiduciaries, many do not.

5. Guaranteed-Income Solution: Relatively few 401(k) plans offer guaranteed-income solutions (ie, annuities). But I expect increased regulatory focus on making these solutions more attractive to employers along with product innovation in the space in the near future. The guaranteed income solutions available in 401(k) plans are likely to be competitively priced and attractive compared to many products in the retail sector (IRAs).

To be sure, financial advisors can provide incredible value to retirees, something I’ve researched extensively. But not all financial advisors are created equal. Additionally, many advisors today can receive compensation for their services based only on the assets they directly manage. This creates at least one potential conflict, where the financial advisor has a clear financial incentive for investors to opt out of their 401(k) plans.

Therefore, consider getting a second opinion from a financial planner about the implications of rolling out a 401(k) plan that doesn’t explicitly pay out based on assets managed before making a final decision.
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Write to Mr. Blanchett at [email protected]

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