How to Assess the Quality of Your 401(k) Plan

Make it your New Year’s resolution to take control of your retirement by reviewing your retirement plans. You may think maintaining a qualified retirement plan offered by a former employer, such as a 401(k), 403(b), or government 457 plan, is enough. But is it?

If you have a retirement account with just one employer, you may have satisfactory investment options and pay low fees, so it might make sense to leave your retirement assets in your former employer’s retirement plan.

But if you have multiple retirement accounts with different former employers, you might want to consider combining your assets into a traditional Individual Retirement Account (IRA). Here’s why.

First, retirement plans such as 401(k)s may offer limited investment options. That could put your retirement savings at risk, particularly if your savings are concentrated in just a few funds. In contrast, self-directed rollover IRAs offer a variety of investment options.

It could also be difficult to manage investments spread among multiple plans. If you have more than one retirement account, consolidating your retirement assets into a single rollover IRA can make it easier to manage, with considerably less paperwork. Plus, having one plan can help simplify estate planning, including beneficiary designations.

Lastly, the mutual funds available through your current plan may have high expense ratios. Reducing just half a percentage point in fund expenses, for example, can ultimately save you thousands of dollars over just a few years.

The best news: when you make a direct rollover, no money is actually distributed to you; it moves straight into the IRA, so you’re not taxed (until you withdraw the money later), and 100% of your retirement assets can continue to grow tax-deferred.

We can help you decide if a rollover is right for you. Please call or email us for assistance.

Don’t Underestimate Your Retirement Healthcare Expenses

Retirement and healthcare are inextricably linked. The golden years, which used to require only a comfortable pension, now necessitate some serious healthcare planning. The new year is a good time to evaluate these needs. Medicare requires premiums and copayments. It also may not cover all the services you need. Additionally, Medicare may be depleted or at least be in a period of financial hardship before you really need it.

Medicaid, meanwhile, pays for medical assistance for certain individuals and families with low incomes and assets, but it will cover some long-term care costs. Plus, to be eligible, you have to exhaust virtually all of your personal resources. As a result, failing to factor health costs into your retirement plan can be financially devastating. It’s a good idea to do some advance planning.

How much will you need? According to the Employee Benefit Research Institute (EBRI), a 65-year-old man needs roughly $73,000 in savings and a 65-year-old woman needs roughly $95,000 in savings for a 50% chance of having enough to cover medical insurance premiums and prescription drugs in retirement.

Health savings accounts (HSAs) may be an option. They allow individuals who purchase high-deductible health insurance to save money annually on a tax-free basis ($3,650 in 2022, and $1,000 extra if you are age 55 or older). And they are great if you start young. If you start with $3,650, contribute the same every year for 10 years and generate a 6% annual return, you will have $57,533 after 10 years, $98,802 after 15 years and $154,029 after 20 years. Worried about how you’ll pay for your healthcare needs in retirement? Call or email us. We’re here to help.