Michael Lynch | Tue Jun 09 10:00:00 EDT 2015
I recently wrote a post suggesting that financial advisors do a simple exercise with their clients around the topic of their employer-sponsored retirement plan. After finishing the exercise, follow it up with a meaningful retirement discussion, to help them understand why you introduced the exercise and how it pertains to them and their future.
There are a few important factors I would highlight when talking to your clients about what to do with their retirement savings when they leave their place of work:
The money accrued while working for a company belongs to the employee, and the intended use is for the employee’s own retirement. If you leave money with a former employer, you remain bound by the choices they made for your investments. By rolling the money over to an IRA, for example, you regain control, and you call the shots. Based on what’s right for you, you can choose to set-up one account or multiple accounts; you can continue to contribute to that nest egg if you continue to earn income; you can convert a portion or all of the savings to a Roth IRA. These are but a few of the things you are able to do if you remember to take control of your retirement money after separating from service with an employer.
Once you separate from service with an employer, you will have an opening to benefit from a vaster array of investment choices. For example, generally speaking, an IRA allows the option to invest in multiple fund families. You may also be able to choose your particular investment model, mixing and matching to build a portfolio that best suits you and your desired risk level. Additionally, you can invest your money at your own will, be it with mutual funds, stocks or bonds. Many employer-sponsored plans don’t offer the same flexibility, and it is important to remember that you now have the freedom to make greater choices with that money than you may have had while employed with the company.
This one is probably the most important. An employer-sponsored plan may be more of a “one size fits all” scenario. As such, when you allow money to remain in an old retirement plan, you may risk missing out on professional and personalized financial advice. Moving your retirement savings from an employer-chosen firm to one of your choosing gives you the opportunity to be selective. While you may not have had this option previously, you can now manage that money with a financial advisor of your preference. If you have an advisor already, then you can entrust those savings to someone who already knows you and your history. If you’re looking for a new advisor, then you can take the time to shop around and find one that will offer you tailored guidance.
No matter what, the important thing is to talk to your clients about what they can—and should—consider doing with their retirement savings once they leave an employer. It is crucial that we are all educated on and aware of what options exist and what factors to take into account when the time comes. I urge financial advisors to have their clients complete the exercise I previously discussed and to follow it up with a discussion focused on these three key points. In doing so, you will engage your clients, clarify employer-sponsored retirement plans for them, and demonstrate to them that you keep their best interests at the forefront of every discussion.
If you’re interested in learning more about IRA opportunities, check out my webinar replay.
This material is merely a general, publicly available communication prepared for general distribution. There may be fees involved in rolling over assets from an employer plan to an IRA. There also are other options available in addition to a rollover to an IRA. All information provided is for informational and educational purposes only and is not intended to provide investment, tax, accounting or legal advice. As with all matters of an investment, tax, or legal nature, you and your clients should consult with a qualified tax or legal professional regarding your or your client’s specific legal or tax situation, as applicable.