New year, new you? Another year of new resolutions, but is financial security one of them? Setting tough goals is easy, but sticking too them… not so much. Many give up on resolutions before the month is over. And yes, budgeting and saving for the future is about as exciting as dieting or going to the gym.
Maybe that’s why half of us simply forget about our old savings accounts.
Just like ignoring your health, ignoring your finances can have dire consequences. It’s not uncommon for people to put off tomorrows problems. It’s hard enough dealing with today’s bills. Most don’t want to be thinking about them years or decades from now. The problem with waiting to look at your savings until retirement is that you can’t make up for lost time. Do you really want be in your sixties and find out you have to work another twenty years?
There are obstacles when it comes to saving for retirement. Quite frankly, it can be boring. Boredom isn’t the only thing conspiring against your success. Banks and investment companies believe that they cannot survive unless they charge high fees on retirement accounts. They’re willing to do anything to keep clients paying those fees. There’s an incentive to make moving and managing as difficult as possible.
Let’s make your fiscal New Year’s resolution easy to keep this year. Employee sponsored retirement plans like 401(k)s, 403(b)7s, 457s are great, but it’s better to move your savings into an Individual Retirement Account (IRA) after you leave your employer. Here are a few of the top excuses I hear from people who put off this important step towards getting your finances in order.
It’s Not Hurting Anything Sitting There
This is one of the larger misconceptions. Nowadays, people are changing careers more often than they change cars. That can leave you sorting through a lot of bank statements as the years go on. Does it hurt having all of those old retirement accounts floating around? Honestly, how would you know?
Too many retirement accounts to keep track of is a big problem. I’ve seen more than a fair share of people who can’t locate some of their old accounts. Losing thousands is bad. But let’s say you’re keeping tabs on all of your accounts. Are you managing your investments right?
Your employer can’t tell you how much to save for retirement or how you should invest. That lack of professional investment advice can really hurt. I once worked with an engineer who had amassed twelve different retirement accounts by the age of 50. He was a professional and good with numbers. But not with investments.
After reviewing the last 15 years of investment performance across all of his accounts, I let him know that he had an annual average rate of return of only 1.1%. He was actually losing money when you factored in inflation. By having all of his accounts spread around, he wasn’t able to properly diversify the portfolio. When I made him aware of this, he still refused to consolidate his funds with me.
The reason was cost… and that’s my next topic.
It’s Not Costing Me Anything
If you think trying to keep track of multiple bank statements is hard, try actually reading all of that paperwork sent to you. Rules and regulations are written by corporate lobbyist. Banks and investment firms rely on the fact that consumers are at a disadvantage. This makes it easy to hide the hidden costs in your 401k.
The average cost of investing in an employee sponsored plan ranges from .36% to 1.71%. That doesn’t sound like much until you realize those fees could cost tens or hundreds of thousands of dollars. Most people simply don’t understand how these fees are assessed in their account.
When you move your money to an IRA account, there will still be costs. If you’re working with an investment advisor who is a fiduciary under a fee only compensation structure, the costs of managing your account will be transparent. These costs are often lower or comparable to the costs found in an employer’s plan.
The difference is that a financial advisor will be able to tell you exactly how much you need to save and which investments are best based on your individual situation. Either way you go about saving, you’re going to be paying investment fees. If you have to spend money, get something out of it.
Shouldn’t you at least get the advice and guidance that gets you to your goals?
My Retirement Account Always Go Up
This has to be one of my favorite excuses people have for holding on to an old retirement account. And yes, I’ve heard this many times. “I don’t want to move my account because it’s always gone up.”
This excuse usually comes from people who haven’t looked at their account statement in a while. The person telling me this has a point. The account was going up when they were working for the company.
And it should have been going up. When you’re working for a company and putting money out of your paycheck into 401k, the account is going to go up. If you haven’t worked for that company in a while, the investments will move with the stock market instead. Only seeing your investments moving upwards might mean that it’s been a while since you reviewed the account.
It’s Too Hard to Move My Account
It sure seems like it. Banks and investment firms do pretty much everything they can keep you from doing so. They keep you in the dark about costs. Your statements either scare you away or bore you to sleep. And then there’s the sales team.
The sales team will do anything to keep an account sitting. Well before you’ve ever considered moving an account, the sales team does their best to hook you on other products or services. Ever wonder why your ‘financial advisor’ tries to push a bank account, a credit card, or even a mortgage on you? The reason is that accounts are considered ‘sticky’.
‘Sticky’ products are pushed because Wall Street learned long ago that it’s hard for a client to move their money when they have more accounts to transfer. You might think you’re getting a great deal, but the bank is getting a better one. The same sales team that pushes these products is the same one that’s there to convince clients not to leave. A salesperson is paid to do anything to keep the money working for the bank, not you.
One of the things they’ll tell you is how hard it to move your account. The reality is that it’s pretty simple. If you’re transferring an account, the advisor you’re working with does all the work for you. Depending on the account, it can take as little as three days.
You have a lot to do this January. Getting your resolutions in order… I can’t help with all of them. What I can do is make you getting your financial house in order. Start your 2017 with one less worry.