Companies are changing their retirement options in response to an aging workforce and the scars of high inflation over the past three years, according to a survey by global asset manager MFS Investment Management.
Six in 10 retirement savers say they are concerned about inflation affecting their savings, including 61% of plan participants with more than 4,000. MFS Survey They said they have become more conservative investors.
Meanwhile, 45% of the 140 plan sponsors surveyed said they have made or are considering making changes to their fixed income offerings, and 35% said they have adjusted or may adjust inflation protection options.
“It’s clear that workers are feeling more anxious about retirement amid continued inflation and economic uncertainty, and plan sponsors are recognizing this and responding in real time,” said Jeri Savage, chief retirement strategist at MFS.
By offering more of these options, employers also hope to persuade employees to stay in their plans after they leave, she said.
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Why would an employer want retirees to stay in their retirement plan?
The larger the size, the greater the purchasing power.
“As people get older, their balances go up, which helps the plans grow,” Mr. Savage says, benefiting retirees and current employees because companies can “negotiate better fees, better[investment]options and service, everything.”
“There’s a paternalistic aspect to this,” she says. “It helps the participants; they get more out of it than they would if they were doing it on their own.”
2018, Market Research Company Cerulli Associates When workers were asked what they planned to do with the hard-earned money they had saved in their 401(k) plans, they found that at least half had “generally no idea” how to proceed.
Do employees generally remain covered by the company’s retirement plan?
Usually, no.
The survey found that within five years of leaving their company, 52% of workers had transferred their retirement savings to an IRA, 31% had cashed it out, and only 17% had kept it. Vanguard Research.
“But if a plan allows for flexible distributions, retirement-age participants and their assets are more likely to remain in their employer’s plan,” the Vanguard report states. “The percentage of plans offering this feature has nearly doubled over the past five years, driven by increased demand for retiree-friendly plan design, in-plan advice and retirement income solutions.”
Should I leave money in my 401(k) after I retire?
It depends, experts say.
Some things to consider when making your decision, experts say, include:
◾ Fees. Your employer pays a portion of the fees while you’re working, but once you leave, you’re likely responsible. If the plan has large assets, fees can be lower than an IRA, Savage says.
◾ Investment options. As plan sponsors now realize, cash-like investments such as short-term bonds, inflation-linked bonds and stable value funds tend to play a bigger role in retirement portfolios than when they were younger or saving more, according to MFS. Corporate plans generally lag behind in these investment options compared to IRAs, but more plans may be catching up.
◾ Access to funds. If you retire and leave your company the same year you turn 55, you may be able to withdraw money from your 401(k) at age 55 without penalty. The IRS’s so-called Rule of 55With an IRA, you must wait until age 59 1/2 to enjoy that privilege. All withdrawals from either type of account, except Roth accounts, are taxable.
Also, check whether the plan allows you to decide which investments you want to withdraw cash from. Some plans don’t give you the flexibility to choose and force you to make a lump-sum withdrawal from all holdings in the account, which can compare unfavorably to an IRA.
Other points to consider:
◾ Creditor Protection. Laws regarding creditor protection for retirement assets vary by state, but generally, corporate retirement plan assets have more protection from creditors and lawsuits than IRA assets.
◾ Control. If you put your money in a company plan, the company has control and can change the rules about investment options, plan administration, record-keeping, and more. They can even change withdrawal limits or restrict how you can change your investments. Or the company may merge, change plan sponsors, or even worse, close down or file for bankruptcy, meaning your money can be handed over multiple times over the years and become difficult to track.
◾ Consolidate. If you have multiple savings accounts, it may be easier to transfer your money from your 401(k) to the account where all your other funds are kept to get a better handle on your financial situation.
“If you have money left with your old employer, you can forget about it,” says Michael Primavera, a retirement plan adviser at Daniel A. White & Associates. Most people must start taking required minimum distributions (RMDs) from each account starting at age 73. If you forget, you could be hit with a penalty of 25% of the amount not withdrawn, in addition to taxes, he noted.
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How many of us forget about our 401(k)s?
Capitalize, a financial services company that specializes in 401(k) plans, estimates that as of May 2021, there were 24.3 million forgotten 401(k) plans with assets of about $1.35 trillion, with 2.8 million new ones being opened each year by general retirees, not just those who retire.
“When you quit your job, you clean up your desk and take your stuff,” Primavera says. “Why leave[your savings]behind? It’s probably one of the largest assets you own, along with your house.”
Medora Lee is USA TODAY’s money, markets and personal finance reporter. Contact her at mjlee@usatoday.com. You can also subscribe to our free Daily Money newsletter, which delivers personal finance tips and business news every Monday-Friday morning.
