Retirement Rollover Blues – A Tale of Caution

Retirement Party

For the most part, private sector workers in America have become responsible for their own retirement. Whether they understand this or not, the switch from Defined Benefit plans to Defined Contribution plans (such as a 401(k)) over the past three decades has left individuals in charge of their own retirement.

While some pundits of 401(k) retirement plans complain about the broken system, many people have saved significant amounts of money. However, the media is calling attention to a troubling problem that may crush the best of plans for retirement. I speak of the rollover or distribution process from a 401(k) plan. As people retire or leave an employer for other reasons, they face the big decision of what to with their retirement account.

Federal law provides four basic options for a retirement account when someone leaves their employer:
1) Leave the money in their retirement account;
2) Have their money transferred to the retirement plan of a new employer;
3) Transfer their money into their own IRA account; or
4) Withdraw their money and take it in cash

Ultimately, each person has to look at the pros and cons of each choice to determine the most appropriate course of action for them. However, people are often pressured by salespeople into making financial decisions they may later regret. Rollovers represent so-called money in motion that attracts financial salespeople like moths to a brightly burning street light.

As thousands of boomers ease into retirement each day, billions of dollars are transferred out of plans and into IRA accounts. The numbers and the consequences are huge. According to researcher, Cerulli Associates, approximately $621 billion dollars flowed out of retirement plans during 2012 (the latest data available) alone.

Bloomberg News in a fascinating article, earlier this week, exposes the seedier side of the financial services industry and its pursuit of rollovers. The article uncovers and lays out the questionable rollover practices of several current and former brokers/advisors/insurance agents. While this article does not represent the practices of the entire financial services industry, it does provide a very cautionary tale. If you are nearing retirement and wondering what to do with your nest egg, I would suggest reading this article to get a feel for some of the challenges you face as you seek to implement a sound investment strategy.

On this weekend’s show, I will be taking a closer look at this article, and caution you on some of the things to look out for. The program is on from 8 AM to 9 AM on Sunday, June 22, 2014 on KNBR 680 AM San Francisco. Hope you can join us!

Gary Allen on Business
Gary Allen on Business

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