July 9, 2019
5 Important Reasons to Consolidate Your Retirement Accounts
The beauty of retirement is that you get to make your life a little simpler. No more daily grind, no more unending cycle of work and weekend, and not as much anxiety or stress.
Your time and your money are yours to do with as you please when you please.
But if you’re like millions of retirees, you could be wasting countless hours (and dollars) thanks to an unassuming suspect: your various retirement accounts.
You may not realize it, but the truth is if you’re housing your retirement savings in more than one location, it could be a costly mistake, in more ways than one. Because those accounts may have higher fees which add up, and a complex web of accounts takes extra time and money to manage.
The solution? Consolidation.
Here are five of the ways that you can make your life easier by rolling your retirement funds into a single account.
1. Save money on expensive fees and penalties
Any account where you have money stored is going to have fees involved. Whether it’s a brokerage account, a 401(k), or an IRA, it’s important that you know what you’re paying because you don’t want high fees eating away at your investment returns in retirement.
Whether they’re baked into the funds you’ve selected as an expense ratio, charged as a brokerage fee on your investment account, added on as a stock trading commission when you buy or sell, or charged by a financial adviser who is helping you sort through your plan, it’s critical to know what you’re paying in fees and possible ways you can save money.
2. Avoid unnecessary penalties from the IRS
If you haven’t yet heard of a little something called the required minimum distribution, it’s the IRS formula that tells you (once you turn 70 ½) exactly how much money you must withdraw from each of your accounts.
For IRAs, you can take your entire RMD for multiple IRAs from one single IRA. For a 401(k), you need to take the RMD from each one. If you fail to meet a required distribution, you face a penalty.
The more accounts you have, the more you have to pay attention to, and the more likely you are to accidentally miss one of these distributions.
3. Make your retirement paycheck simpler
One of the biggest fears among today’s retirees is running out of money. And it’s a reasonable concern, considering longevity continues to increase.
When you can no longer count on a paycheck from work, there can be some concerns here. Consolidating will give you a clearer picture of your overall financial situation and allow you to make more knowledgeable decisions about how to allocate your funds for the short and long term.
4. Consolidate funds for your loved ones
Most of us want to do everything we can today to make sure our loved ones are cared for after we’re gone.
One of the simplest ways you can do this is by consolidating your funds. No one wants to deal with a lot of paperwork from various institutions that they have to keep straight, especially in the middle of a time of mourning.
Having all of that information in one place can make an extremely painful situation a little less difficult and it’s a gesture your loved ones will surely appreciate.
5. Simplify your own life today
Plain and simple, fewer accounts means less for you to keep track of today, including things like paper statements, account passwords, and stacks of investment reports. It also makes legal processes, like updating beneficiaries or adding a trustee, easier. And, if you’re thinking of downsizing at some point, it even makes the process of moving a lot easier when you only have one place to update your mailing address.
But best of all, consolidation will save your most valuable asset: time.
When you combine all of your retirement funds into a single account, the time and money you can save can go toward the right thing like fully enjoying your retirement.