Why Retirees Should Leave Their 401(k) Alone

Summary

---

WSJ Your Money Briefing

Episode Title: Why Retirees Should Leave Their 401(k) Alone
Date: April 17, 2019
Host: J.R. Whalen
Guest: Ann Tergerson, WSJ Retirement Reporter

---

Episode Overview

This episode addresses a crucial question for retirees: should you roll over your 401(k) after you leave your job, or could you be better off leaving your savings in the plan? Host J.R. Whalen speaks with retirement reporter Ann Tergerson to discuss why retirees are increasingly encouraged to keep their 401(k) accounts intact, the impact of fees, new plan features, and how these factors affect flexibility in retirement withdrawals.

---

Key Discussion Points & Insights

1. Traditional Practice vs. Emerging Trends

• Common Past Behavior:
  Historically, retirees (and even those changing jobs mid-career) have typically rolled their 401(k) funds into an IRA upon leaving an employer.

  • Ann Tergerson: "It still is very common...for them to take the money in their 401 plan and transfer it to an individual retirement account or an IRA." (03:37)

• Automatic IRA Rollovers:
  Rollovers have been a default move, often considered tax-efficient and harmless, though some cash out—an option Tergerson notes can be problematic.

2. The Thrift Savings Plan Update

• Not a New Plan:
  Tergerson clarifies that the government’s Thrift Savings Plan (TSP) has existed for years, serving federal employees much like a 401(k).
  • "It's got like...something like $500 billion in it." (04:17)
• What’s Changing:
  As of September (2019), TSP updates will offer federal employees more options to keep their money invested in the plan post-retirement, rather than pushing automatic rollovers.

3. Why Leaving Money in a 401(k) May Be Wise

• Fee Considerations:
  Staying in a solid, employer-sponsored plan—especially from larger companies—often means lower fees than those typically found in IRAs.
  • Tergerson: "The vast majority of IRAs are going to be more expensive than what you would have in a plan like that...[and] generally the lower the fees, the better." (05:07)
• Compounded Impact of Fees:
  Even small fee differences can significantly erode retirement savings over time.
  • "They can [cost you]...that's really been why a lot of people have shifted money into index funds, because that's an area they're looking for cost savings." (06:16)

4. Increased Flexibility in Withdrawals

• Incremental Withdrawals:
  Many employers now let retirees make partial withdrawals or set up scheduled payments, rather than forcing an all-or-nothing choice.
  • Tergerson: "A growing number of companies are allowing people to take out something in the middle...allowing you the discretion to decide what you want to take out, when you want to take it out." (06:47)
• Strategic Planning:
  This flexibility enables retirees to better manage taxes and expenses, taking a "measured approach" instead of withdrawing the full amount at once.

5. Improved Advisory Services for Retirees

• Growing Support:
  Larger plans, especially, are working to provide older participants with access to investment guidance and support tailored to the more complex financial circumstances retirees face.
  • "There is a growing trend towards helping people get investment advice if they need and want it...to kind of make themselves friendlier to older workers and to retirees." (07:30)

---

Notable Quotes & Memorable Moments

• On Changing Plan Rules:
  "What's changing in September is that the thrift savings plan is making it easier for federal employees to leave their money in the plan..."
  — Ann Tergerson (04:17)

• On Fees:
  "The vast majority of IRAs are going to be more expensive than what you would have in a plan like [a large 401(k)]....generally the lower the fees, the better in terms of the more returns you get to keep."
  — Ann Tergerson (05:07)

• On Withdrawal Flexibility:
  "A growing number of companies are allowing people to take out something in the middle...allowing you the discretion to decide what you want to take out, when you want to take it out."
  — Ann Tergerson (06:47)

• On Services for Retirees:
  "...plans are offering financial advice, it's an effort to kind of be more friendly or appealing to older people and get them to stick around."
  — Ann Tergerson (07:30)

---

Important Timestamps

• [03:08] — Introduction to the topic: Should retirees leave their 401(k) alone?
• [03:37–04:12] — Why rolling over to an IRA is common, but not always optimal.
• [04:17–04:59] — Thrift Savings Plan changes for federal employees.
• [05:07–06:16] — Comparing fees in 401(k)s and IRAs; the impact of costs.
• [06:36–07:16] — New plan features: partial and scheduled withdrawals.
• [07:30] — Growing investment advice support for retirees within 401(k) plans.

---

Summary

This episode encourages retirees and soon-to-be retirees to critically assess the longstanding habit of rolling over 401(k) assets to IRAs, highlighting that modern employer plans—especially large ones—often offer competitive fees and new flexibility in withdrawals. The trend is toward making retirement plans more attractive to older workers through lower fees, incremental withdrawal options, and financial advice, helping retirees maximize their nest eggs and take better control of their finances in later life.

Transcript

[Small Business Owner]

Access to affordable credit helps me pay my employees, but I don't really need it.

[Retail Industry Representative]

Inflation is killing me, but who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill.

[Small Business Owner]

See banks and credit unions help small businesses make payroll. This bill would cut the vital resources

[Retail Industry Representative]

they need while increasing megastore profits. They deserve it, don't they?

[Advocacy Group Spokesperson]

Tell Congress. Stop the Durbin Marshall money grab for corporate megastores paid for by the Electronic Payments Coalition.

[Tanya Bustos]

With your money briefing. I'm Tanya Bustos, reporting from the newsroom at the Wall Street Journal. Coming up, if you are a retiree, why you should leave your 401k alone. But first, here are some money headlines. France's business elite, including the country's two richest men, have pledged hundreds of millions of euros to restore Notre Dame Cathedral, kicking off what looks to be a flood of money from around the world. Bernard Arnault, a head executive at Louis Vuitton, plans to donate 200 million euros to the fund dedicated to restructuring Notre Dame. Francois Henri Pinault, who controls rival fashion group Kering, says his family will donate 100 million euros. French officials are still assessing the damage. It was unclear how much it would cost or how long the reconstruction would take to check in on the world's biggest money manager. For a moment. BlackRock this week posted a fallen first quarter profit as a price war ripples across the asset management world. The company posted quarterly profit of 1.05 billion. That's down from 1.09 a year ago. Revenue declined by 6.6% to 3.35 billion. BlackRock became a behemoth during the last decade with the rise of funds that replicate markets cheaply and are easily traded. But the Journal says a substantial chunk of the Firm's assets leaves BlackRock exposed to stock market swings and a price war in that part of the of the industry. And a handful of digital health startups are offering consumers easy and affordable services that don't require the involvement of doctors or insurance companies. One company, everywell Inc. Which sells at home health testing kits, is the latest example. The company secured $50 million in Series B financing, led by Goodwater Capital and Highland Capital Partners. Previously, the company had raised 5.3 million, including the $1 million secured when it was featured on the television show Shark Tank. Direct to Consumer health startups continue to grow, with examples including sexual health companies HIMSS and Roman Health to online dental specialist Candid Co Inc. Which last week secured a $63 million Series B round of financing. Straight ahead, the Case for retirees to leave their 401ks alone. New policies have encouraged retirees to let their 401k retirement accounts keep working for them even in their post career years. The Wall Street Journal's J.R. whalen has more.

[J.R. Whalen]

When it's time to retire, most people look to their 401k account as a source of cash to live comfortably in their post career years. But is there a reason to leave your 401k alone and continue to let it grow? The answer is yes. And Wall Street Journal retirement reporter Ann Tergerson is here to explain. So Ann, in the past, people actually followed policies and methods encouraging them to transfer their 401k savings to retirement accounts. But times have changed, right?

[Ann Tergerson]

In the past it was really common. Well, it still is very common for people to, when they leave a company to take their money, whether they're retiring or whether they're just leaving a job at age, you know, 40 or 50 or whatever, for them to take the money in their 401 plan and transfer it to an individual retirement account or an ira, which is tax free transfer. And it's certainly, you know, a fine thing to do. You know, a lot of people also cash out those accounts, which can be problematic. But doing an IRA rollover is something a lot of people just automatically do.

[J.R. Whalen]

And then the government is launching a thrift savings plan in September. Can you explain what that is?

[Ann Tergerson]

So actually the government has something called a thrift savings plan. It's a giant massive retirement plan. It's basically, it's not a 401, but it's just like a 401 for federal employees. And it's got likeI can't remember the numbers, but something like $500 billion in it. So it's a huge plan. So what's changing in September isn't that the plan is coming into existence because it's existed for years. What's changing in September is that the thrift savings plan is making it easier for federal employees to leave their money in the plan rather than under old rules. It definitely made it so that a lot of people would, would automatically roll their money over.

[J.R. Whalen]

And leaving money in a 401k plan gives people, retirees, much more flexibility than if they were to take it out.

[Ann Tergerson]

You know, it really, it depends on the situation. You have to really be very clear about when you're going to need this money and what you want to accomplish. And you also have to be very careful in sizing up what's available in the plan versus what's available in an ira if you're one of the people, if you're a person who works for the federal government and you've got money in the thrift savings plan, or if you work for like a giant corporation, you know, perhaps like, you know, an IBM kind of sized company, you probably have a great 401k plan. I mean, the fees are probably very low. And you know, it may be possible to get comparable or even lower fees in an ira, but you have to be careful. And the vast majority of IRAs are going to be more expensive than what you would have in a plan like that. So you just want to be clear. And generally the lower the fees, the better in terms of the more returns you get to keep. So that's one thing you'd have to weigh.

[J.R. Whalen]

And the fees just even a fractional change in fees can cost a retiree a bit of money.

[Ann Tergerson]

They can. So it's definitely one thing that investors can control. And that's really been why a lot of people have shifted money into index funds, because that's an area they're looking for cost savings and that can make a big difference. It doesn't mean that you should let fees necessarily drive the decision, but they are very important to consider.

[J.R. Whalen]

And for retirees, we don't mean leaving your 401 alone means just leave it alone forever, but it gives retirees an opportunity to take a measured approach and maybe take out money incrementally.

[Tanya Bustos]

Right.

[Ann Tergerson]

So this is what a growing number of companies are doing. Rather than forcing people who are retiring or leaving the to either like take everything out or take nothing out. A growing number of companies are allowing people to take out something in the middle, like whether it's like a regular monthly paycheck or whether it's just like one month I want to take out $1,000 the next month I don't want to take anything out, but allowing you the discretion to decide what you want to take out, when you want to take it out.

[J.R. Whalen]

And you've been here on your money briefing many times. We've talked about a growing trend in companies and the government really trying to help seniors better plan things or help ret help better plan things financially for their post working years.

[Ann Tergerson]

Right. So this is also Another trend in 401ks is that especially with regard to the larger plans, there is a growing trend towards helping people get investment advice if they need it and want it. And so, you know, that's another way in which these plans are trying to kind of make themselves friendlier to older workers and to retirees whose finances, you know, they probably have more money saved than your average millennial employee. Their financial lives are probably more complicated. And so to the extent that plans are offering financial advice, it's an effort to kind of be more friendly or appealing to older people and get them to stick around.

[J.R. Whalen]

Okay. That is Wall Street Journal reporter Anne Tergerson here in our studio. And thanks for coming on the show.

[Ann Tergerson]

You're welcome.

[J.R. Whalen]

And that's your money briefing. Hi, I'm J.R. whalen in New York for the Wall Street Journal.

[Small Business Owner]

Access to affordable credit helps me pay my employees, but I don't really need it.

[Retail Industry Representative]

Inflation is killing me, but who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill.

[Small Business Owner]

See, banks and credit unions help small businesses make payroll. This bill would cut the vital resources

[Retail Industry Representative]

they need while increasing megastore profits. They deserve it, don't they?

[Advocacy Group Spokesperson]

Tell Congress, stop the Durbin Marshall money grab for corporate megastores paid for by the Electronic Payments Coalition.