Warning: 2 Urgent Reasons Why Boomers Must Do Their 401k Rollover

 In Retirement

401k rolloverEvery year, more and more Baby Boomers are getting close to the age of retirement. Of course, many of them have already crossed that threshold too. For most people, getting close to retirement should be an exciting time. It may even come with some big plans like pursuing a lifelong dream or moving somewhere new. Unfortunately, for far too many individuals, this important time in their life will become unnecessarily difficult because of something that’s supposed to be working in their favor: retirement accounts.

The Problem with Numerous Retirement Accounts

When you consider how many jobs most people will have throughout the course of their lives, it becomes obvious that a lot of us would have numerous retirement accounts too.

According to a recent study that was done by Boston Research Technologies’ CEO, Warren Cormier, 50.3% of Boomers have at least one 401(k) savings account with a prior employer. 41.6% of them said they plan on leaving the account balances in their most recent ex-employer-sponsored plan exactly the way it is, as opposed to moving it into their current plans or Traditional IRA

Furthermore, the study also reported that 31% of Boomers who left accounts with ex-employers did so because they liked their investment options better. Unfortunately, those retirement accounts can lose thousands and thousands of dollars because of administrative fees. This is the first reason why Boomers must do  their 401k rollover into IRA.

Another reason to urgently rollover your 401(k) into an IRA is the fact that Boomers naturally need to protect their retirement funds. Because of their age, boomers’ asset allocation should be skewed to the fixed income securities. However, 401K(s) only offer bond funds. The problem with a bond funds is that, unlike individual bonds, bond funds have unlimited maturity and therefore will lose their value when interest rates begin to rise.

Interest rates are at the lowest levels in three decades. No one can predict when the cycle will end. However, history tells us that the average length of an interest rate cycle is 30 years. The current one is already 35 years old.

Rolling over their 401(k)s into IRAs allows Boomers to build a dedicated portfolio of individual bonds with short-term to medium-term maturities that will match their future cash outflows and will be immunized from interest rates hikes.

Getting Help With 401k Rollover

There’s no doubt about it: retirement accounts can definitely be a pain to consolidate. This helps explain why so many Baby Boomers don’t do it or at least put it off. The good news, though, is that they don’t have to do it on their own.

All you really need to do is just open a traditional IRA with some of the online brokerage firms like Charles Schwab or TD Ameritrade, or with low cost “robo-advisor” firm IncomeClub, which specializes in bond investing and holds clients’ assets at Interactive Brokers, an SIPC insured brokerage firm. Then apply for the 401k rollover and they will take care of all the paperwork.

If you’re eying retirement, it can become all too easy to get caught up in excitement and forget about some very important matters. One of them is making sure you’ve consolidated your retirement accounts and protected it from inevitable interest rates hikes next decade. Make this a priority so that you can truly kick back and relax when retirement finally arrives.



Sergey Sanko
Sergey had started an IncomeClub after years of being an investment advisor for high affluent investors and managing fixed income securities. He is the lead investment advisor representative and holds a Series 65 license. Sergey earned his Executive MBA degree from Antwerp Management School.
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