Should I stay or should I go? Moving money from your retirement accounts should not be done hastily

Should I stay or should I go?  

If you’re a saver, chances are at some point you’ll be invited to move your money. Before you accept this invitation, take time to understand what the move really means. It may be the most impactful financial decision you make in your lifetime.  

Let’s assume you have been saving over the years—putting money in your 403(b), IRA, and/or your spouse’s 401(k). Your account balance is starting to look like something. It feels good to know that your efforts are paying off and that you’ll have a little nest egg waiting for you when you retire. Now you’re wondering if you need to be doing something differently or something more at this stage.

This occurs to you because you’ve been receiving mail from a financial investment broker offering a free steak dinner along with the opportunity to learn how you can earn more on your investment. Or, there’s a local agent who dropped by your classroom to introduce himself and shared how he’s helping several colleagues about your age manage their investments.

Before you do anything, stop and ask yourself—why are you suddenly on their radar?

You’re a real catch

People who have been saving for a while or are already retired tend to receive a lot of attention from investment brokers and agents because they’ve already done the hard work of building their nest egg. That can mean opportunity for someone who makes their living selling investment products and services. While that may sound cynical, it’s a fact that the financial industry is huge and profitable.

There are strong incentives for someone who sells investment products to build a relationship with you, especially if you have accumulated some net worth. “Rolling money over into an IRA, annuity, or another investment vehicle can be very lucrative for the broker,” says Brenda Echeverria, Financial Planner for WEA Member Benefits. “It’s not uncommon for a broker to earn 5% or 6% right off the top. Bringing in an account worth $100,000 would mean a commission of $5,000 or $6,000.”

The value proposition

Is this a fair and reasonable price to pay? How do you know? It depends on what you are getting and whether you think the benefits justify the cost. Determining the value proposition isn’t as straightforward as you might think. Before making a money move, you need to understand—really understand—the implications of your decision. That means knowing what you are buying, exactly how much it will cost, and what you stand to gain (or lose) from the move. This requires that you dedicate some time to gathering the necessary information and doing your due diligence. “It will be time well spent,” Brenda assures, “because this is your hard earned money and future income we’re talking about.”

Here are some things to consider, questions to ask, and actions to take to help ensure you make the very best decision for you.

1. Toss the emotions out the window—get pragmatic

Making decisions about money can be very emotional. When it comes to your savings—the money you will rely on in retirement—the stakes are high, so it’s important not to jeopardize your financial security by letting emotions influence your decisions.

Emotions can sneak into the decision-making process in different ways. “Fear,” says Brenda, “is a big factor. People are afraid they won’t have enough money, worry whether their asset allocations are appropriate, or hear about what others are doing and wonder if they should be doing it too. Emotions can be useful in driving people to take action but can lead to disastrous results if they drive the decision. It’s why people chase the market or get out when the market drops.”

Brenda says it is also common for educators to feel compelled or obligated to consider or use the services of someone they know from the community. “It might be the spouse of a friend or neighbor. They don’t want to hurt their feelings or tarnish the relationship by saying no to their offers or suggestions.” Remember, this is a business transaction, not a social event. They are not doing this as a favor. This is how they make a living. The point is, whoever you decide to work with, make sure you do it for the right reasons.

2. Don’t believe everything you hear

Last year undercover investigators for the Government Accountability Office, Congress’s nonpartisan investigative arm, called random brokers asking about what they should or could do with an old retirement account with a former employer. They found that about one-third of brokers suggested a rollover to an IRA even though they had asked very little about the individual’s financial circumstances or needs. Also, misinformation was given like you have to move it because you can’t stay in the current plan and you can’t roll over into a new employer’s plan even though that may not be entirely true.

“We hear similar stories from our participants,” Brenda says. “They call and say ‘the broker I talked to said I have to move my money out of my 403(b) now that I’m retired or changed careers.’” This is inaccurate information that could result in a poor financial decision for the participant.

Your Member Benefits’ 403(b) and IRA accounts can remain with us whether you retire, change districts, or change professions. Additionally, both can be “stretched” over your lifetime or your beneficiaries’ lifetime if you choose.

Information such as this should always be validated by your provider before you take any action. Don’t take someone else’s word for it.

3. Uncover the fees

You wouldn’t walk onto a car lot and ask the salesman to pick out the best car for you without asking how much it costs. But people do this all the time with investment products.
When you are talking fees with the agent/broker, ask for a list of all the costs and identify which are one-time fees and which are ongoing. “Many times the fees are not obvious or easy to understand,” says Brenda. “There are often layers of costs beyond what the person you are talking to has explained.”

For example, you may be charged other fees associated with the product that the agent doesn’t receive, like mortality and expense (M&E) fees which go to the company. And, if you are adding premium services, such as ongoing investment advice, you’ll typically pay a percentage of your assets on top of fund fees. Is it worth it? Maybe, but adding layers of fees can cut the chances that your money will last.

“It helps to convert any percentages to actual dollars. I often hear, ‘it’s just 1%,’ but when I convert that into a dollar amount for them, it’s an eye-opener,” says Brenda.

Here are fees you need to watch for and quantify:

  • Commissions
  • Mortality and Expense (M&E) Fee
  • Management Fees
  • 12b-1 Fee
  • Annual Contract Charge
  • Custodial Fee
  • Surrender Charge
  • Wrap Account Fee

Every dollar you pay in fees is not earning interest in your account. So consider the potential earnings you are losing out on as well.

4. Identify restrictions

As a general rule, the more guarantees or promises you are getting with a product, the more restrictive the withdrawal options. Most annuities have surrender periods of 5 to 7 years. This means that you are basically locked into the contract for that period of time and can’t withdraw your money without paying surrender fees. These fees can run as high as 7% of your account balance depending on the longevity of the account. It can be difficult and costly to undo certain moves. However, for some investments such as annuities and insurance products, there is a 30-day look-back period during which you can cancel.

“I have talked with people who didn’t realize that the move limited what they could do. Or they didn’t understand that they are locked in for a 5- or 7-year surrender period,” says Brenda.

While participants in our IRA and 403(b) can keep their accounts with us for as long as they want and continue to take advantage of our low fees, if an account is closed out there may not be an opportunity to come back. Brenda explains, “When you retire, you are no longer eligible to open a 403(b) account because you are not working. Once the account is closed, there’s no coming back. I can’t tell you how many retired people I have talked to who want to come back because they moved their money and were not happy. Unfortunately, I have to tell them they can’t.”

Likewise, with the IRA, you can stay as long as you like, but if you close the account and move out of state, you may not be eligible to reopen an account.

Before you close your account, give us a call to learn about what this means for your eligibility to return.

5. Keep the bottom line top of mind

The primary reason people move money into our program is to take advantage of the low fees. The number one factor in determining your rate of return—after asset allocation—is cost.

Participants in our 403(b) and IRA programs enjoy especially low fees (.35% and .45% respectively) that are capped annually. “Typically, the bigger your balance, the more fees you pay in terms of dollars, but that’s not true here,” Brenda says. “The fees for participants in our 403(b) are capped at $500 annually, and for the IRA, fees are capped at $600 for WEAC members and $750 for non-members.” The fee cap means that more of your money stays in your account and continues to work for you. “I’m not aware of any other program that caps their fees,” she says.

Contrast this with an annuity product that charges a 1.25% M&E fee (see example below).

Stay or go example  

Keep in mind, there may be additional fees charged if you have riders for other guarantees or promises built into the annuity.

6. Get the help you need

Member Benefits recognizes there are times when participants need some face time with an expert regarding their investments and plans for the future.

About seven years ago, we launched our financial planning services program. Participants can have a free one-hour consultation with our financial planner once per year. If you need more, you can take advantage of our fee-based services.

Last year, 317 participants took advantage of the free one-hour consultation in Madison. This year Brenda will be scheduling days in Eau Claire, Green Bay, and Brookfield to service participants.

What really sets us apart from other investment brokers or agents is that Member Benefits retirement consultants and financial planners do not receive commissions, so you receive unbiased information. Our staff can answer questions you have about our program or other products that you might be considering. We can help guide you through the evaluation process so you make the best decision for you.

Another question to ask someone you are considering working with is “are you a fiduciary?”

“I am,” says Brenda.

This means the financial planner has made a commitment to work in the client’s best interests at all times and puts YOUR needs before THEIR needs.

Before you decide whether you should stay or go, ask yourself: Is it worth it? Only you can determine if what you receive in return justifies the cost. Whatever you decide, make sure it’s the best decision for you and your situation. 

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