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.
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.
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.
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.
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.
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.
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.
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