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Why Rollover Your 401(k)

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401k contributions

Bec and me at the Mini Palais in Paris.

You wouldn’t be the first person to wonder who in the world comes up with these phrases: “Rolling over your 401k.” 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 401k, and are in or near retirement, have figured out what a rollover is by now. It’s when you transfer your 401k contributions into an IRA.

401k Contributions Are Free Money

I love the 401k 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 401k. The reason: If the money stays in the 401k 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 401k 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 401k contributions 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 401k does a terrible job for bond or income investors. I mean just terrible. I have reviewed hundreds of 401k 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.

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E.J. Smith

Editor-in-Chief
E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@youngresearch.com.