Retirement Account Transfers - Considerations

Should I Stay or Should I Go (with my retirement account)?

The subject of retirement plan portability and the decision employees / investors must consider have been on my mind recently, having fielded a few questions from prospects and clients so far this year. Let’s examine the benefits and pitfalls of moving retirement money to an I.R.A.

Many defined contribution (DC) retirement plans, including private and public sector employees, can be moved or rolled over upon an employee leaving or terminating their employment relationship. Some plans are even more flexible and allow you to move some or all of you money while still working through in-service arrangements. New contributions, as an example, can be directed to another custodian and keep the amounts deferred from being taxed when earned. The human resource or benefit department should be able to explain all of the options, but you have to ask. Federal legislation and I.R.S. rules dictate the procedures to follow by the custodian of the account in facilitating the transfer of these funds to another financial institution. These retirement plans could include 401(k), 403(b), 457, TSA, TIAA/CREF, etc.

What are the factors to consider in transferring your retirement account to an I.R.A?
On the assumed advantages side of the ledger:


More investment choices.
Better strategies to achieve longer term goals
Option to convert to a ROTH IRA in later years.
Ability to withdraw funds for 1st time home purchase or to cover medical expenses.
More options for beneficiary selection and continued tax deferral.

Advantages of staying put:
Familiarity with existing plan choices
Generally happy with the performance
Lower fees and expenses than outside choices
Favored tax treatment of company stock owned in your plan.

I favor a balanced approach. Keep some money in the employer plan, and rollover some money to an I.R.A. Why? Neither place offers all the best options usually. Unless you have a heads up on real shenanigans going on (the Enron debacle comes to mind in which employee retirement accounts were frozen and not permitted to move their investments until it was too late), most employer DC plans offer a decent mix of choices: say a couple of stock mutual funds, perhaps an index fund, a bond mutual fund, and a money market fund. In recent years, international fund choices have appeared as well. It’s pretty hard to mess up buying and holding these types of typical fund investments. If you want more “action” buying stocks, bonds, mutual funds that your ex-employer does not offer, then you may wish to venture toward an advisor who knows this area and can help educate you along the way.

To espouse on the above bulleted list, one apparent drawback to moving is that of increased risk. Once you move from the DC “fund” choices to individual stocks and bonds, risk goes up. I’m sure you’ve heard stories after 9/11 and into 2002 of employees losing 40-50% of more of their retirement balances due to the nasty bear market and poor investments. From my experience, most of the really bad losses were not in company sponsored DC plans, but were in Individual-directed I.R.A. accounts. That’s not an absolute statement because some plans did hold funds with a big technology basis (which fell the most), but employer plans I managed then were careful not to give the workers many risky choices; i.e. not enough rope to hang themselves.


Lastly, you could find yourself mulling non-financial reasons for moving or staying put. Did you like your job, or were you close to co-workers that you’ll miss? Was retirement planning part of your conversations with co-workers? These may be intangible reasons to stay connected to the company by way of your retirement plan.

Enjoy your leap year day and weekend!

Barry Unterbrink
Retirement Planning Counselor

A Rocky Start to 2008

Rocky start to 2008 probably a "normal" correction

The stock market is off to a rather dreary start to 2008, with the popular market averages falling 5% to 10% in just a few weeks, and 14% to 20% from the highs of last October. You can blame it on any of the popular reasons you will hear about in the papers or news channels, or just accept the fact that prices are ruled by humans and their emotions of greed and fear. Also, stock prices over long periods tend to rise in 3 of every 4 years. We may not be in a recession yet, but we are in a bear market for stocks now. How you handle the risks will determine if you have to stomach to be a successful investor.

The average of the 10 worst bear markets since 1901 lasted about 20 months, and caused about a 40% decline in stock prices. That may seem like a long time, but some were shorter: 2 @ 13 months; some longer (the Great Depression) @ 31 months, and the recent 2000-2002 bear market that lasted 33 months. So from a historical standpoint, we are about half-way through the pain at this point in price terms if this is a "top 10" event.

What are your options at this point? One option is to sell your lagging (losing) stocks, and deploy that money into better prospects. Another is to sell and to park the money is cash. If you are a long-term investor and chose this option, then you need another decision to buy again...and that is a difficult assignment. No one rings a bell when it's time to buy again. A third way is to keep most of your stocks and hedge your risk using mutual funds or ETF's that move opposite the direction of stock prices. I won't get into the details, but check the following symbols on your charts: The ETF's are: SH, SDS, DOG, DXD, RWM,TWM, PSQ. In mutual funds, try the no-load Pro Funds: UCPIX and USPIX. These investments trade like regular stocks or mutual funds, and they hold securities sold "short". Today, the above mentioned gained between 1.5% and 5.5%. So therefore, their gains would offset a portion of your loses day by day.

Political Implications for Stocks

I don't want to mix political musings in this column, but wanted to share this verbiage from David Kotok of Cumberland Advisors in his year-end report in this election year. To quote, "we acknowledge that stock markets like clearer outcomes during election years. Uncertainty breeds volatility. Ned Davis database starting in 1888 shows Election year gains averaging 14% when the incumbent party wins and 18% if that incumbent party is Republican. When incumbent Republicans have lost, the average Election year gain is under 2%. Since WW2, there have been three Republican Party turnovers. Kennedy’s election year of 1960 had a 3% declining stock market. Carter’s 1976 victory over a post-Nixon disgraced Republican Party was celebrated by a booming 19% up market. Bill Clinton’s 1992 win over incumbent Daddy Bush saw a 5% upward market move."

For a review of your portfolio, give me a call.
~Barry Unterbrink
(954) 719-1151

For Baby Boomers ('46 - '64)

Are Baby Boomers out of the woods yet?

What I mean by that is...has the baby boom generation (born 1946 to 1964) conducted themselves financially to be able to retire someday in a fashion better than their parents did?

I returned last week from an interesting 3-day financial conference in Topeka, Kansas that addressed many issues of importance to this generation, and thought it helpful to share this with you. A few of the findings from recent surveys:

* Baby boomers want a lot.
* They are concerned with lifestyle preservation.
* They do not like loss of control with things or money. Money controls the lifestyle.
* They are less likely to be charity-oriented.
* They may know a lot, but are unsure of their best choices for retirement savings.
* Guarantees are important to them: 71% feel a steady income is important.
* 69% value a guarantee of their principal when they near retirement.
* They are becoming more conservative...as is expected when we age.
* 32 percent would not invest any money in the stock market to fund their retirement.

* The average baby boomer's 401k account balance is just $58,000.
Whoa-only that much! Maybe boomers are living up to the survey results; live now, pay later. Of course it's unfair to place all boomers in this category, and a 401-k plan is most often not their only asset or investment/savings account.

What I found most interesting is that boomers did not know more about retirement savings and investments. Perhaps my view is skewed since I'm in the business, but I assumed they knew the basics of income planning, annuities, options, stocks, bonds, etc. The financial media and commercials make it seem so easy. "Open an account, trade free, make lots of "Mad Money", retire early". Well, lest I burst your bubble: managing and planning for retirement is tough work ... a moving target of decisions, taxes, employer miscues and incompetent HR guidance, etc. Throw investor emotions of fear and greed into the mix, and it's no wonder boomers and investors in general are like the deer blinded by the headlights before it gets run over.

Luckily, coming to the resuce are some very interesting products and services that can help ease the decision-making with your retirement money - guarantees on income and principal protection, offseting inflation risks and that can avoid other headaches if structured properly.

I'll save the details for my next blog, which should post in about a week or so.

Have a blessed Thanksgiving.

~Barry Unterbrink