Why rolling a 401(k) into an IRA is a bad idea

Although this article has a provocative title, I’m not sure it’s a fair conclusion, at least not all the time.

The author argues that a lack of stable value funds and higher fees are two reasons why employees may want to avoid rolling their 401(k) balances into an IRA when they leave a company.

First, there’s a big difference between rolling over early in your working career vs rolling out at or near retirement. When you’re closer to retirement, you may need the help of an advisor with smart retirement income planning tools and products to transition from savings to income.

Second, there is an emerging class of low-cost advisory platforms for rollover IRAs, making the transition more affordable than it was in the past.

Third, there are likely to be a greater number of unique fund choices in certain rollover accounts that aren’t available in your 401(k).

Wouldn’t it be great for a rollover IRA to have all three: planning, low cost and unique funding choices?

Retirees Often Choose Income Strategies that Increase Risk to Retirement Security

This article appeared on the LIMRA website (which stands for “Life Insurance and Market Research Association”).

In it, the writer purports that when the time comes for retirees to draw income from their savings, many unwittingly choose strategies that could increase their risk and reduce the number of years their money will last.

To address that issue, the writer suggests that investors consider adding income annuities to the retirement mix.

While it’s not surprising that a life insurance organization would support the use of income annuities, it doesn’t mean it’s a bad strategy.

The percentage of investors who knowingly or unknowingly accept the risk of a withdrawal strategy is shockingly high.

Unfortunately, many view the “certainty” of an uncertain plan (“I have an 80% chance my money will last to age 90”) as comforting without appreciating the risk.