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4 Financial Planning Items You Should Consider When Changing Jobs
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August 4, 2020A rollover is when you move your retirement account from an old job into the retirement account at your new job or to an IRA (Individual Retirement Account). Here are 4 points to consider for your financial plan after making a career change.
You May Not Have to Leave Your Old Retirement Plan
First things first. If you have more than $5,000 in your old retirement account then, by law, your old company can never force you out of their plan. So you don’t have to do anything. But having said that, there are several good reasons why you may want to do a rollover.
Diversification vs. Fragmentation
I find that people often think having lots of investment or retirement accounts is a good thing. After all, isn’t that diversification? The truth is, the more accounts you have the harder it is to keep track of them, manage them intelligently, and coordinate the overall investment strategy across all of them. That’s why whenever I see people with lots of accounts I inevitably see no coherent strategy in their portfolio as a whole.
What we want is diversification in the investments, not the number of accounts. You can easily construct a globally diversified portfolio in just one account if that’s appropriate for your situation. Lots of accounts just leads to fragmentation, gaps and redundancies in the portfolio, and often, fee inefficiencies.
On the other hand, having investments work in concert with one another under the direction of one plan is much more efficient over time.
Consider the All-in costs for your old retirement plan vs. your new retirement plan
There are layers of cost to every retirement plan. These include advisory fees, third party administrator fees, Recordkeeper Fees, and Mutual Fund Investment costs.
Having a grasp of those costs can often direct whether you would keep your plan at your old provider or roll it over somewhere else. If a plan is too expensive, this can diminish your returns over time.
Assess the Advisory Services on Each Plan
It is important that you meet with the advisor on each retirement plan and understand how involved they will be in the financial planning process for your retirement. Will they provide investment recommendations? Do they offer financial planning?
Many advisors on 401k plans will provide investment education but not investment advice. If you’re climbing Mt. Everest you want your Sherpa to tell you exactly which direction to go next, not expound on the different features of all the paths you could consider.
Also, it’s rare for advisors on 401k plans to build holistic financial plans. But a plan gives context to a portfolio. Without knowing where you want to go how can you know if you should take a plane, a train, or a car, or just walk? Without a financial plan, you’re playing horseshoes in the dark. You have to set goals and develop a plan for what steps to take to achieve them before you can know what part of your portfolio should be invested in stocks vs. bonds, let alone which specific funds.
If that approach makes sense to you, reach out to us today to get started building a plan to have the financial life you want.
Disclosure:
Tumwater Wealth Management is a registered investment adviser and may only conduct business in states where it is registered or exempt. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.
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