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Welcome to How to Retire on Time, a show that answers your retirement questions. Say goodbye to the oversimplified advice you've heard hundreds of times. This show is about getting into the nitty-gritty so you can make better decisions as you prepare for retirement. Text your questions to 913-363-1234 and we'll feature them on the show. Don't forget to grab a copy of the book, How to Retire on Time, or check out our resources by going to www.retireontime.com.
Welcome to how to retire on time, a show that answers your questions about all things retirement, including income, taxes, Social Security, health care, and more. This show is an extension of the book, how to retire on time, which you can grab today for free by going to www.howtoretireontime.com, or you can buy a physical copy on Amazon. My name is Mike Decker. I'm the author of the book, how to retire on time, but I'm also a licensed financial adviser, insurance agent, and tax professional, which means when it comes to money, dollars, cents, finance, investments, all of it, we can cover it all. Now that said, please remember this is just a show.
Mike:Everything you hear should be considered informational as in not financial advice. If you want personalized financial advice, you can request a wealth analysis from my team today by going to www.yourwealthanalysis.com. With me in the studio today is mister David Franson. David, thanks for being here.
David:Yes. Glad to be here.
Mike:David's gonna read your questions, and I am going to do my best to answer them. You can submit your questions in at any time during the week by texting (913) 363-1234. Just save that number in your phone when you think about it. (913) 363-1234, or you can email us at, hey, Mike, at how to retire on time dot com. Let's begin.
David:Hey, Mike. If we have changed careers once or twice and now have multiple four zero one k's, what do you recommend we do with them? Let's assume one of them rolled over into an IRA.
Mike:The quick answer you're probably gonna hear on all social media, on LinkedIn or whatever, the whatever experts, quote unquote. Sure. They're gonna say, roll it out of the four zero one k and put it into an IRA.
David:Okay.
Mike:And I agree with that in principle. There's a good chance that you're paying more fees in your four zero one k than you would if you just open up a Schwab, Fidelity, Vanguard, whatever account, put it in there and bought some ETFs. You'd probably be able to match performance and have lower fees.
David:Yeah. What are some examples of some of the fees that are in a four o one k that are not in like a traditional IRA?
Mike:So in a
Mike:four zero one k, you've got administrative fees because it's it's a bookkeeping nightmare. There's a lot of laws and regulations. You've got your risk of compliance. So it is expensive to manage a four zero one k. It is.
Mike:They're not criminal. They're not robbing you or whatever. Right. It's just a hassle. Yeah.
David:There's lot of moving parts. I mean, it's usually an employer sponsored situation. Right?
Mike:And so Yeah. There there's a company, I won't say their name, John Something, that does a lot of four zero one k plans, but they recently got a lot of publicity because a certain person on HBO did a whole bit on four zero one k's and and ridiculed them because they had quote unquote high fees.
David:Okay.
Mike:They probably could have negotiated a better fee structure, but to run a four zero one k is very expensive. So I wanna be just from a compliance from the administrative standpoint, let's be kind to anyone that's running a four zero one k, because it is a lot. Yeah. But once you're not tied to it, and your money could move, it could be a good idea to roll it out. So instead of paying the administrative fees, and all this other stuff, and then the mutual funds in four zero one k's could have back end fees, could have 12 b one fees.
Mike:All that stuff, you could roll it over into a traditional IRA at Schwab, or Vanguard, or wherever. Mhmm. Okay. We're impartial to whoever it is, just a good custodian, And then you buy a bunch of low cost ETFs and stocks. So you basically have the same performance, but less fees.
Mike:That means more money to you. So that is a common option. I get why people do it. Here's the catch.
David:Okay.
Mike:I'm ready. Do you want to retire before 59 or not? Sounds good on paper. So if you wanna retire, let's say at 56 years old, and you rolled over all of your four zero one k assets into an IRA Uh-huh. You can't touch that without a penalty.
Mike:Oh. If you keep your assets in a four zero one k, there's some nuance to this, but in a very simple definition K. And you retired after 55, there's something called the rule of 55, which will allow you to take withdrawals from your four zero one k after the age of 55 without the 10% penalty. Oh. But it has to come from your four zero one k or four zero three b or whatever.
Mike:Okay. So the reason why I bring up the conflict of interest is because financial advisers, including ourselves, in some sense, can be compensated by someone rolling it out of the four zero one k, and then either managing it with a 1% fee or whatever they're gonna charge, or put into an annuity and giving the back a commission, or I mean, whatever it is. Maybe they're saying, hey, roll it over and buy some property with a self directed IRA. Everyone's got a sales incentive to get the funds out of your four zero one k.
David:Yes. But we have to look
Mike:at your lifestyle plan first. Yeah. Do you want the option of retiring beforehand? And if you do, how much income do you need, so that we can calculate how much needs to stay in the four zero one k first. So there is a reason to keep money into your four zero one k before anything else.
David:And it sounds like the main reason would be if you plan to retire before 59. Yeah. Which is the that's the threshold of penalty versus no penalty withdrawals. Right?
Mike:Yeah. Mean, do you wanna pay an extra 10% or not? I'd prefer not to. Yeah. So if you're 60 years old or older, or you've no intention of retiring that soon
David:Yeah. Roll it out. Then it almost universally makes sense to roll
Mike:it over. Is that what you're saying? Almost universally. Okay. Because for compliance purposes, you never wanna give absolutes.
Mike:That's right. This again, not financial advice. We're just talking here.
David:But
Mike:yeah, I I can't see many reasons why you would want to I mean, maybe I did a lot of business with Boeing employees. The Boeing employment plan, the VIP that they have up there, their specific situation Mhmm. They've got some benefits in there that make sense to keep money in there. Mhmm. That's a specific four zero one k plan that went above and beyond for their employees that it does make sense.
Mike:Okay. So you just wanna make sure you know what you're getting and what you're leaving.
David:Okay.
Mike:So all things now, all that been addressed. Yeah. Let's talk about what you could do. If you were to roll it over
David:Okay.
Mike:And you wanted to self manage, you could buy things at a cheaper rate because you're paying less than fees. Mhmm. If you roll it over and you want a professional to manage it, they can manage your IRA. If you're getting close to retirement, and you wanted an annuity, for example
David:Mhmm.
Mike:That would be the time to do it. You do not wanna buy annuities, in my opinion, at forty five fifty or 55 years old. It's when you're five years away from retirement, you can start to consider it. And the reason why is for whatever reason, at 45, 50 years old, you start getting invitations to dinner seminars to be pitched an annuity. I just We just got one
David:at my house, just like last week.
Mike:Yeah. And you're 47? Yeah. Hey, buy an annuity today. Yeah.
Mike:Remember, risk versus potential reward. If you don't need your money for over ten years, why are you putting it into an asset that's not gonna make more money than the stock market? Insurance products don't make you rich. Right. Insurance products don't make you rich.
David:Can I say it again? Just one more time for all those up in the rafters. Yeah.
Mike:Yeah. Insurance products are not intended to make you rich. You're transferring a risk to an insurance company. So buying an annuity because you're scared of the market, you don't need the funds for over ten years in most situations. And if you want some protection, then explore something else like a buffered ETF or a structured note or maybe a lower risk asset for a certain period of time, and then when things settle down, you go back into the market.
David:So I don't know if you wanna talk about what those are, buffered ETF, structured notes.
Mike:We don't have time, but go to another show for that one. What was the question again?
David:Yeah. So the question was, you've got all these multiple four zero one k's.
Mike:Oh, okay. People change jobs a So, yeah. You've got more investment options Yeah. Outside of the four zero one k than in the four zero one k. Oh, yeah.
Mike:So you you could open up a self directed IRA, and buy real estate.
David:Opens a whole new world.
Mike:Yeah. You could buy alternative investments. You could go into privately traded REITs. You could do buffered ETFs. You can do all sorts of things.
Mike:Your four zero one k has a limited option of what you can invest in.
David:There's usually each four zero one k has kind of like a menu of like a handful of mutual funds, seems like, from my experience.
Mike:Yeah. But remember, before you do anything, put together a lifestyle plan first, work with a fiduciary, but some fiduciaries are really just salespeople with a specific cookie cutter plan. So a holistic fiduciary or a comprehensive fiduciary that can also give you tax advice. Mhmm. Find one of those, cough cough, or one of them, cough
David:cough. Right.
Mike:But find someone that's gonna first put together a lifestyle plan, and then look for the efficiencies, and then start talking about investments and products. You don't wanna put the cart before the horse. That's all the time we've got for the show today. If you enjoyed the show, consider subscribing to it wherever you get your podcasts. Just search for how to retire on time.
Mike:Discover if your portfolio is built to weather flat market cycles or if you're missing tax minimization opportunities that you may not even know exist. Explore strategies that may be able to help you lower your overall risk while potentially increasing your overall growth and lifestyle flexibility. This is not your ordinary financial analysis. Learn more about Your Wealth Analysis and what it could do for you regardless of your age, asset, or target retirement date, go to www.yourwealthanalysis.com today to learn more and get started.