Current:Home > MarketsMore companies want you to keep your 401(k) with them after you retire. Should you?-LoTradeCoin
More companies want you to keep your 401(k) with them after you retire. Should you?
View Date:2024-12-23 20:34:33
Companies are responding to an aging workforce and scars from the past three years of elevated inflation by changing up options in their retirement plans, according to surveys by global asset manager MFS Investment.
Six of 10 retirement savers said they’re worried inflation could affect their savings, while 61% of the more than 4,000 plan participants MFS surveyed said they’ve become more conservative investors.
On the flipside, 45% of the 140 plan sponsors surveyed said they’ve either made or are considering changes to their fixed income offerings and 35% said they’ve made or may adjust their inflation-protected options.
“It is clear that workers’ anxieties about retirement have grown in the face of persistent inflation and economic concerns, and plan sponsors recognize this and are responding in real time,” said Jeri Savage, MFS lead retirement strategist.
By offering more of these options, employers also hope to convince workers to stay in the plan even after they’ve retired, she said.
Protect your assets: Best high-yield savings accounts of 2023
Why do employers want retirees to stay in their retirement plans?
With size comes purchasing power.
“As you age, you have a larger balance and that’s helping to create some scale of that plan,” Savage said. Companies can “negotiate better fees and everything, including better (investing) options and services” that benefit retirees and current employees.
“It’s also paternalistic,” she said. “It helps participants. They’re better off than if they do it on their own.”
In 2018, market researcher Cerulli Associates asked workers what they planned to do with the money they so diligently saved in 401(k) plans and found at least half were “generally clueless” as to how to proceed.
Do employees usually stay in their company retirement plans?
Typically, no.
Within five years of leaving a company, 52% of workers had rolled their retirement savings into an individual retirement account (IRA), and 31% had cashed out, leaving only 17% who stayed, according to a Vanguard study.
“However, when plans permit flexible distributions, retirement-age participants, and their assets, are more likely to remain in the employer’s plan,” Vanguard’s report said. “The percentage of plans that offer this feature has nearly doubled in the past five years, along with an increasing demand for retiree-friendly plan designs, in-plan advice, and retirement income solutions.”
Is it better to leave money in a 401(k) after retirement?
It depends, experts say.
Some things to consider when deciding, experts say, include:
- Fees. While you’re working, the company will pay some of the fees but when you retire, they often fall to you. If your plan's assets are large, the fees can be lower than an IRA, Savage said.
- Investment options. As plan sponsors realize now, according to MFS, investments like short-term bonds, Treasury Inflation-Protected Securities, and cash-like investments such as stable-value funds are apt to play a bigger role in your in-retirement portfolio than when you were younger and growing your nest egg. Generally, company plans have lagged in those investment options compared with an IRA but more may be catching up.
- Access to money. If you retire and leave your company the year you turn 55 years old, you might be able to withdraw from your 401(k) at 55 without a penalty, according to the IRS’ so-called Rule of 55. With IRAs, you must wait until 59-1/2 for that privilege. All withdrawals from either account, except a Roth account, are taxed.
Also, check if the plan allows you to decide which investments to cash out for withdrawals. Some don’t allow you flexibility to choose and will force you to make a general withdrawal from all the holdings in the account, which could be a disadvantage compared to an IRA.
Other points to consider:
- Creditor protections. Laws on creditor protections for retirement assets vary by state, but company retirement plan assets generally have better safeguards from creditors and lawsuits than do IRA assets.
- Control. If you keep money in your company plan, the company’s in charge and can change the rules, including investment options, plan administration and record keeping. It could change withdrawal limits or restrict how you change investments. Or the company could merge, change plan sponsors or worse, close or file for bankruptcy and your money could be handed over several times over the years, making it hard to track.
- Consolidation. If you have multiple savings accounts, it might be easier to roll out of the 401(k) to where all your other money is held to get a better view of your finances.
“If you’re leaving money at your prior employer, you could forget about it,” said Michael Primavera, retirement planning adviser at Daniel A. White & Associates. Most people will have to start taking a required minimum distribution (RMD) at 73 years old, and they’ll have to do so from each account. If they forget, they could be subject to a 25% penalty on the amount not withdrawn on top of taxes, he noted.
Change with inflation:With interest rate cuts delayed, experts offer tips on how to maximize your 401(k)
How many people forget about their 401(k)s?
As of May 2021, there were 24.3 million forgotten 401(k)s holding approximately $1.35 trillion in assets, with 2.8 million more left behind each year by people leaving jobs in general, not just retiring, according to estimates from Capitalize, a financial services firm specializing in 401(k)s.
“When you leave a job, you pack up your desk and take your things,” Primavera said. “Why would you leave that (your savings)? It’s probably one of the largest assets you own, like your home.”
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at [email protected] and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
veryGood! (753)
Related
- Mariah Carey's Amazon Holiday Merch Is All I Want for Christmas—and It's Selling Out Fast!
- Stock market today: Asian shares slip in cautious trading following a weak close on Wall Street
- New Philanthropy Roundtable CEO Christie Herrera ready to fight for donor privacy
- As Thanksgiving Eve became 'Blackout Wednesday', a spike in DUI crashes followed, NHTSA says
- See Blake Shelton and Gwen Stefani's Winning NFL Outing With Kids Zuma and Apollo
- A hand grenade explosion triggered by a quarrel at a market injured 9 people in southern Kosovo
- Cadillac's new 2025 Escalade IQ: A first look at the new electric full-size SUV
- Maui wildfire survivors camp on the beach to push mayor to convert vacation rentals into housing
- New 'Yellowstone' is here: Season 5 Part 2 premiere date, time, where to watch
- 2 killed, 5 injured in Philadelphia shooting, I-95 reopened after being closed
Ranking
- Harriet Tubman posthumously honored as general in Veterans Day ceremony: 'Long overdue'
- From 'Blue Beetle' to 'Good Burger 2,' here are 15 movies you need to stream right now
- Poland’s new parliament debates reversing a ban on government funding for in vitro fertilization
- We review 5 of the biggest pieces of gaming tech on sale this Black Friday
- After years of unrest, Commanders have reinvented their culture and shattered expectations
- Ex-Trump Organization executive Jeffrey McConney chokes up on stand at fraud trial, says he's very proud of work
- Nearly half of Americans think the US is spending too much on Ukraine aid, an AP-NORC poll says
- All the Michigan vs. Ohio State history you need to know ahead of 2023 matchup
Recommendation
-
Will Trump curb transgender rights? After election, community prepares for worst
-
How Travis Kelce Really Feels About His Nonsense Tweets Resurfacing on Social Media
-
Atlanta officer used Taser on church deacon after he said he could not breathe, police video shows
-
As Thanksgiving Eve became 'Blackout Wednesday', a spike in DUI crashes followed, NHTSA says
-
What is prize money for NBA Cup in-season tournament? Players get boost in 2024
-
Exploding wild pig population on western Canadian prairie threatens to invade northern US states
-
'Hard Knocks' debuts: Can Dolphins adjust to cameras following every move during season?
-
Patrick Mahomes can't throw the ball and catch the ball. Chiefs QB needs teammates to step up.