You wouldn’t be the first person to wonder who in the world comes up with these phrases: “Rolling over your 401(k).” As if investing isn’t confusing enough, the wording is so bad you can’t help but think about a dog trick. This is supposed to be serious stuff.
Most of you corporate warriors that have a 401(k), and are in or near retirement, have figured out what a rollover is by now. It’s when you transfer your 401(k) savings into an IRA.
I love the 401(k) as a savings vehicle. It’s a great way to get free money from your employer. But it is lacking big-time when it comes to investing once you’re actually in retirement. I’ll explain why in a minute.
There was an article in the WSJ a couple days ago that caught my eye titled, “Latest 401(k) Pitch: Leave it Behind.” It’s about how large plans (over a billion dollars) are trying to keep retired or soon-to-be retired employees in the company’s 401(k). The reason: If the money stays in the 401(k) it gives the company more assets, and more assets means more negotiating power with the plan administrator for lower fees. I love the lower fees but here’s the problem: A 401(k) is great as a savings vehicle but is terrible in transitioning your lifetime of savings into “hey, I need this money to live off of now.”
When you’re working, managing your 401(k) is easy. You’re so busy, you don’t have time to think about it. You blindly become the long-term investor you never dreamed you could be.
But, when you’re retired, it’s a whole lot different. You’ve got more time. And all you can think about is your money. And when you’re not thinking about it, your spouse brings it up.
Now I know what you’re thinking. E.J.’s got a fine axe to grind. He wants me to rollover the money because he wants to manage it. True, that would be great. It’s my job, and my email address is ejsmith@youngresearch.com, but there’s more.
The 401(k) does a terrible job for bond or income investors. I mean just terrible. I have reviewed hundreds of 401(k) plans through the years and almost to a one I have concluded that the folk dreaming up this stuff don’t understand how to invest in retirement. The bond offerings are atrocious. They either have maturities long-after you’re dead or the high-yields really end up being junk. And in case you’re wondering whether or not bonds are for you, they’re like title insurance or a parachute, you don’t need them until you do.
That’s all for today. I wanted to get this down on paper before the market opens. Yet, another reason to own bonds.
