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Sometimes less is really more

Having more retirement accounts is not the same as having more money. Consolidation may actually give you more control and security because it simplifies management of your investments. At the very least, you may eliminate redundant fees.

your$ magazine Winter 2009Several years ago, Terry and Carol Leaman made a big financial move—literally. They moved all the money they had saved for retirement to one place—WEA Member Benefits.

“There were three reasons we consolidated: comfort, simplicity, and economic advantage,” says Terry. Terry and Carol were preparing to retire. “We sat down with a consultant [from Member Benefits]. She evaluated our situation and told us what we could expect income-wise when we retired. We even found I could retire earlier than I expected. Moving the money made sense for us. Carol had her 403(b) with WEA and we felt comfortable with the organization.”

Terry had two 401(k) accounts from previous employers and an IRA, all heavily invested in stocks. “We went through the hi-tech boom and the bust and wanted to get out.” He rolled over his accounts into an IRA Guaranteed Account. “The rate was 5% at the time—a darn good rate.”

Rob McCalla, a Retirement Income Consultant at WEA Member Benefits, agrees that as you approach retirement, you need to consider reducing your risk. “Most people approaching retirement have more to lose and less time to make up for market losses before they will need the money.”

Considering the recent economic debacle on Wall Street, the Leamans are happy with their decision. “I have an adversity to risk now. In retrospect, it was absolutely the right move for us. We have a good life, and I can sleep at night.”

Feeling comfortable with the level of risk you take when investing is key. McCalla suggests that you revisit your asset mix periodically to make sure your tolerance for risk matches how you are investing your money.

A common reason people consolidate is convenience, according to McCalla. “Convenience means different things to different people. It can mean controlling and understanding your financial situation, it can mean easier management of contributions and withdrawals, or just being able to call one place to get help.”

Easy reading. Managing multiple accounts can be a lot of work. If you have five different accounts, you receive five different quarterly statements. Each reports the quarter’s activities differently, so it’s no small feat to get a glimpse at your overall situation.

With your assets in fewer places, you get a clearer snapshot of where you are financially. The Leamans agree. “We really wanted to make life simple,” says Terry. “We put our money in one place so we only receive one set of statements, and we know exactly where we’re at.”

McCalla points out that consolidation also makes tracking contributions and withdrawals easier. Because there are limits to how much you can contribute to most retirement accounts—penalties will apply if you go over—multiple accounts require you to more closely monitor where and how much you contribute.

Headache-Free RMDs. The Internal Revenue Service (IRS) requires you to start withdrawing money from certain types of accounts, such as a 403(b) and Traditional IRA, generally at age 70½. These withdrawals are called required minimum distributions (RMDs).

“Retired people with multiple accounts struggle with this,” says McCalla. When calculating your RMD, you must consider all of your accounts. And although you have control from where and how you want your RMD to be taken, you are also responsible for communicating your withdrawal plans to all your account providers. “Failing to make your intentions clear can go bad in two ways. Either too much money will be distributed to you or not enough, which results in an IRS penalty of 50% of the RMD amount that was not distributed,” he explains.

One point of contact. Consolidation gives you a single point of contact. Questions about your statement or your asset allocations can get answered with one phone call. And account changes, such as address or beneficiary changes, are a breeze.