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Four Reasons to Consolidate your Retirement Accounts

Gone are the days of a simple retirement. Today’s retirees are exiting the workforce young and facing longer retirements, and the landscape of retirement accounts has become increasingly complex. With the rise of job hopping, it’s becoming more common for individuals to accumulate multiple retirement accounts over their careers, and thus the necessity to consolidate retirement accounts.

According to data from the Bureau of Labor Statistics, men aged 35 to 44 spent a median of 5 years at their current workplace in January 2022, while women spent 4.5 years. This trend toward job mobility makes it vital for individuals to stay on top of their retirement accounts and, better yet, consider consolidating them into as few accounts as possible. Here are four reasons to consolidate your retirement accounts.

1. Fewer investment fees

Low fees play a crucial role in determining the success of an investment account. One of the benefits of consolidating your retirement accounts is the potential for reduced fees. When you have multiple retirement accounts, you may be subject to multiple account management fees that can accumulate over time. However, by consolidating all your accounts into one, you can significantly reduce these fees by rolling over your funds into a low-fee account.
Even a 1% difference can make or break your retirement success. Here are two scenarios that illustrate the difference it can make.

Scenario A: 2.5% Fee

If you invested $1,000,000 over 20 years with an annual contribution of $6,000 with a 7% RoR, you would have an ending fund balance of $2,536,038. Fees alone would have shaved off over $1,500,000 from your account. Using the 4% withdrawal rule, you would be knocking 13 years off of your retirement.

Scenario B: 1.5% Fee

Let’s look at a 1.5% fee with all other factors remaining the same. Your ending balance would be a tad over $3,000,000, with investment fees hovering at just about $1,000,000. The 1.5% fee is definitely in your favor.
We strongly advise you to review your retirement accounts and pay close attention to the associated fees. We wrote an article for you if you’re unaware of the kinds of investing fees to expect. Or we can do it for you!

Account Minimum Fees and Inactivity Fees

Secondly, many retirement accounts require a minimum balance to avoid maintenance or inactivity fees. By consolidating accounts, you may be able to maintain a higher balance in one account and avoid these fees, which can also add up over time.

2. Less Maintenance

Managing multiple retirement accounts can be overwhelming, especially if you are not familiar with the ins and outs of investment portfolio management. Keeping track of asset allocations, conducting regular portfolio rebalancing, and ensuring that you take the necessary Required Minimum Distributions from each 401(K) and IRA upon retirement can be a daunting task. The complexity only increases with the number of accounts you have, making it challenging to have a complete understanding of your retirement portfolio.
Pro-Tip: Many 401(K)s offer limited options. By rolling over your 401(K) to an IRA, you will gain access to the whole array of stocks and bonds.
Moreover, having fewer retirement accounts also minimizes the likelihood of losing track of one. Unfortunately, this is not a far-fetched likelihood. At the end of 2021, the number of unclaimed 401(K) accounts was staggering – nearly 25 million, worth a staggering 1.35 trillion dollars! Take immediate action when changing jobs – contact a financial advisor and begin your rollover. By consolidating your accounts, you can ensure that all your hard-earned savings are accounted for and accessible when you need them.

3. Escheatment

As for IRAs, beware of escheatment. The state can claim your retirement account after 5 years of zero activity if they cannot contact the owner. If you have multiple accounts, it is easy to let one slip through the cracks, and instead of, for example, back paying taxes owed on it, you discover it’s gone for good.

4. Beneficiaries

When one passes away, they want to leave a strong legacy behind for their loved ones. Having multiple retirement accounts may complicate things to such a degree that a beneficiary may not even know where to begin. Or, they will miss out on IRAs or 401(K)s, lost to the sands of time. Estate Planning is just as important when it comes to you retirement strategy, so be sure to clearly lay out what beneficiary gets what assets, including investment and retirement accounts.
By having all your retirement savings in one place, they will have a clear overview of your overall retirement savings and won’t have to search through multiple accounts to access your assets.

In Conclusion

Consolidating multiple accounts can be crucial for a successful retirement in today’s complex retirement landscape. Consolidating accounts can result in reduced fees, avoidance of minimum balance and inactivity fees, less maintenance, easier management for beneficiaries, and reduce chances of losing one. It is vital you review retirement accounts and move your funds to one with lower fees and greater investment options.
If you’d like a review of your accounts, we’d gladly go over them with you. Just click the button below.

About the Authors

  • Douglas Walters

    Doug is the Managing Partner of Walters Strategic Partners, LLC, a licensed Registered Investment Advisory firm. Doug is a licensed Certified Public Accountant (CPA) in the state of Florida and holds a Series 65 Investment Advisor Representative securities license. He is also a member of the AICPA. With over 28 years of experience as a CPA, he believes investment decisions should be based on decades of peer-reviewed research rather than relying on the latest “hot tip” from media outlets. This empirical evidence puts the science of investing to work for his clients.

  • Jose Joia

    Jose M. Joia is a Wealth Advisor at Walters Strategic Advisors, LLC. As a member of the team, Jose’s responsibilities involve comprehensive wealth management, planning and customer service. He has over 6 years of industry experience specializing in planning and solving unique issues his clients encounter. Jose has experience serving individual clients, business owners and non-profit organizations.