With all of the disruption in the economy, one negative result was the loss of jobs. From the perspective of the employee, the news of a layoff is devastating. To further complicate the financial situation, the employee, focusing on the current cash flow needs of her family, forgets about one of the largest opportunities that lingers behind at the former employer – her retirement assets.
Over the years, we have met with many clients who, during our discussions, apprise us of a job held many years before. We inquire as to the term of the employment and other aspects. You could literally see the light bulb shine above their heads as a smile develops on their face. The next statement uttered by the individual is something like, “I think I left my retirement at XYZ Company”!
We believe people can become so busy in life that mistakes made early in their careers can wreak disastrous effects on their long-term future. Three primary reasons prevail in the matter of transferring your retirement assets from a former employer’s plan.
First, the primary and most damaging impact of leaving retirement accounts with former employer plans is the lost ability to access the assets. Today, employers utilize online platforms to allow participants the ability to view their holdings within a plan and make necessary changes as the person desires. What a travesty if the participant has forgotten the username and password protocols! In a recent example, a client was receiving quarterly statements to follow the changes of their retirement assets remaining at a previous employer when the market correction occurred in February, 2020. Stress accumulated and he called us wanting to know how to make changes in the holdings to slow or mitigate the precipitous fall of his §401(k) account. The sad news is that he had long ago lost his credentials to log on and make changes on the platform. He spent time on the telephone providing background information and other proof of his identity to a call center on the other end of the line. Terribly frustrated, he finally received a temporary username and password only to realize the markets had closed for the day and his account would suffer whatever fate was dealt that day. Had the individual performed a trustee-to-trustee rollover of the assets to an Individual Retirement Account (IRA) after leaving the employment of the plan sponsor, the rebalancing necessary to relieve his stress would have been a simple and efficient task.
Second, most employer plans provide for a minimal number of investment options to maintain lower administrative costs of the platform. When you wish to appeal to the omnibus needs of a group of people that are not homogeneous, the general approach is to provide broad based investment options such as asset allocation mutual funds or a single option in a particular asset class. However, the possibilities are significantly better when you have your choice of thousands of investment options and types of positions. For example, you may wish to participate in nontraded assets as opposed to simply mutual funds or exchange-traded funds with lower internal expense ratios instead of actively traded mutual funds. Based on your risk tolerance, your investment options could be a significant population for you to choose for your account.
Lastly, plan sponsors do their best to accommodate the participants of their plan. However, you may have a need that is more critical and the process to obtain your funds could take significantly longer than you wish to wait. By utilizing an IRA, you can assume more control of the investment of the underlying assets, timing of rebalancing to remain within your risk tolerance levels and achieve your goal for distributions in a timelier manner.
With proper guidance from a Certified Financial Planner™ professional, you may find the investing, rebalancing and reporting of your IRA to be one with less stress and a more rewarding outcome. Don’t abandon your future by leaving vital assets important to your family to simply manage on its own. Take command of your future and utilize all available means to help you reach your ideal retirement! See you on the golf course…