Why Are You Investing Into a 401 K Plan?
Nationwide has a commercial about a couple who are putting off retirement planning. Every time the subject comes up, they come up with an off the wall reason why they can’t do it. From cleaning out the gutters to folding laundry, they always had some thing more “important.” They would go as far as create problems to fix it such as the husband throwing his keys over into the bushes so he had to look for them.
Obviously, the commercial is taking the message of retirement planning avoidance to the extreme. However, it does make a good point. The vast majority of people today have no idea if they are on track, behind the curve, or ahead of the curve when it comes to their retirement goals.
If you ask the average investor why they are investing in a 401 K plan, most would respond for retirement. When I get that answer I always respond with “No – what specifically are the reasons that you are investing into a 401 K plan?” I am looking for an answer more along the lines of – well, I am investing into my 401 K plan so that at age 65 I can retire and live off of $6,000 a month at least until age 90 and I am on track!
Now there is a crystal clear goal oriented answer.
So it begs the question, why don’t most people have a plan? If it is so important, why not take the steps?
Through almost 25 years of working with people I can come up with a few reasons. First, I don’t think that people want to know. Avoidance is a good process if you don’t want the stress of getting some unpleasant news. I see this time and time again. I will have people come into my office and tell me that they are behind in their retirement goals. My reply is how do you know? It is nothing more than a hunch. They don’t know because they don’t have established goals.
I would suggest that not knowing ends up being the biggest weakness in your financial life. By knowing, you become a better decision maker when it comes risk. You have less stress because you are confidently working a plan.
Then there is the other reason. Why start now? I am so far behind there is no way I am going to be able to retire. It is a shame that a person gives up on the dream of retirement without even trying. I have never met someone that we couldn’t form some type of a plan. The key is getting creative.
“Know where you are, know where you are going.”
Don’t live your life like a nationwide commercial. Get a plan and give a specific “why” to your investing and saving.
Bob Brooks is Financial Advisor and host of the Prudent Money Radio Show. For a retirement consultation, contact Judy Parrish to arrange an introductory phone call with Bob at Judy@prudentmoney.com.
The Mistake Investors Make When Rolling Over a 401 K plan
By Bob Brooks, Host of the Prudent Money Radio Show
If you get laid off or leave a company, what is the first thing you do? You clean out your desk and box up all of your personal belongings. What about that retirement account? There is nothing more personal and valuable than that 401 K plan. It needs to go with you too!
You need to be aware of something. There is a common mistake that many investors make when moving 401 K money. You want to avoid the parallel move. A parallel move occurs when you exchange one retirement plan for another, pay fees and commissions, and not gain an advantage for making the move.
There has to be a compelling reason to make the move. Make sure that you are receiving value and gaining an advantage for the money you are paying in fees. You have to ask yourself an important question. What advantage are you getting for moving that 401 K plan?
You Don’t Want to Miss the Opportunity!
Once you are free to move a 401 K plan with a past employer you have a real opportunity. First, you have the opportunity to move what probably represents the bulk of your retirement dollars to a new plan where you have many more available options. Most 401 K plans are limited in options. Second, you have the opportunity to consolidate that 401 k plan with your other retirement options creating one big retirement strategy.
Does it ever make sense to keep it in an old 401 K plan?
What I have written thus far references moving a 401 K plan to an advisor directed plan. What if you are comfortable managing it yourself? Having said that, I would still move it to a self-directed retirement account and increase your investment options.
If you have an abandoned 401 K plan and need some help, make a decision to email me and take some action because the last thing you want is your retirement account out of sight and out of mind.
Bob Brooks is a registered investment advisor and host of the Prudent Money Radio Show. Bob specializes in retirement planning and investment and managing retirement accounts.