Changing jobs is common in our volatile society, but what happens to retirement plans when a change is made? Financial advisors and retirement specialists have some words of advice for anyone in that situation.
“First, check to see who pays the fees. If the balance of your retirement plan is over $5,000, you do not have to move it,” says certified retirement services professional Kerry Caldarelli of AVL WealthCare in Gulfport. “If the new company you work for does not pay the fees for the plan and the old company does, leave it with the old company. Why move it to an IRA where you take all the burden of the cost, if they are paying it?”
He adds that there is power in numbers, and in most cases an individual retirement account can not get the same cost as a group can. Other advice from Caldarelli includes waiting until you know a new job is going to work out before moving an account if you decided to move it and always have a rollover check sent directly to the new custodian.
“Make sure when you move you notify the company if you leave the account. Millions of dollars sit that people forget about because they do not send a forwarding address,” he said. “Know the investments you are getting into and consult with an investment advisor before investing.”
Dudley Barnes, a principal and financial advisor with Raymond James Financial Services in Clarksdale, recommends that individuals make a direct rollover to their new retirement plan or to a self-directed IRA.
“The longer one is gone from a plan, the harder it is to keep up with what’s happening,” he said. “We all need to be responsible for our money and be very knowledgeable about investment choices. Beneficiary designations can also be more easily made to dovetail with complex wills in an IRA.”
Certified financial planner Germaine Weldon, who is also with AVL WealthCare in Gulfport, urges caution when changing jobs. “Find out what the eligibility of the plan is — you may have to sit out six months to a year,” she said. “Find out what the vesting schedule is. It could be up to six years until you are totally vested on the employer contribution part.”
Other advice is to find out if you can roll your old plan into the new plan to consolidate investments. Then, find out what the investments are since you may prefer the old company’s investments and not want to combine the money.
Weldon advises anyone changing jobs to really study their total compensation including benefits and incentives.
“A salary may look higher at the new job, but when added all together, the old job may provide a higher compensation package that includes healthcare benefits, vacation and sick leave, retirement plan matching and incentive compensation,” she said. “Try to find some kind of benchmark of what others in your career are making and receiving as compensation, total compensation.”
Furthermore, Weldon says to carefully check the medical insurance benefits as small companies have a hard time providing this expensive benefit. “They could have a high deductible plan in conjunction with a health savings account,” she said. “Some companies will contribute to a Health Savings Account for employees.”
Watch the pitfalls
Rita B. Parker, associate vice president-investments with Wachovia Securities in Jackson, lists some common retirement planning mistakes to avoid. They include: forgetting about inflation; lack of proper asset allocation; underestimating taxes; underestimating retirement spending; and, unrealistic investment expectations.
“Whether you’re a seasoned investor or just getting in the habit of putting money away, saving for retirement takes discipline and strict adherence to a well laid out plan,” she said. “Sometimes it may seem far away, but preparing now for the time when you’ll be done bringing home a regular paycheck is critically important.
“And unfortunately, the prospect of running out of money during retirement is a very real possibility. To make sure you’re on the right track with your retirement savings, considering these common mistakes and recognizing them is the first step in avoiding them.”
Contact MBJ contributing writer Lynn Lofton at firstname.lastname@example.org.