Your Retirement Checklist: 4 Employer-Sponsored Retirement Plan Moves for Near-Retirees

Written By: Kyles Shores | Wealth Manager & Partner

For most aspiring retirees, an employer-sponsored retirement plan – commonly known as a 401(k) or 403(b) plan – plays an important role in their overall retirement portfolio. According to data from Vanguard, the average 401(k) account balance for those ages 55-64 was just shy of $200,000 – not enough to fund a full retirement but certainly additive to larger goals. When considered within the context of a comprehensive retirement strategy, the 401(k) and 403(b) are integral to overall retirement readiness.

Aspiring retirees are more primed than ever to take the necessary steps to ensure their retirement savings are on track. There are four key action items we recommend to our near-retiree clients surrounding their employer-sponsored plan:

  1. Change your investment mindset – Transitioning closer to retirement requires a shift in mindset, moving from the accumulation and growth phase of savings to the distribution and income phase of retirement, as well as a shift in your investment allocation and risk posture. As you near retirement, it is important to work with your advisor to assess risk within your investment portfolio. Your advisor can help determine how drastically to shift your investments based on the role your employer-sponsored plan plays within your larger plan.
  2. Assess your overall retirement readiness – The years leading up to retirement are crucial to your overall financial health during your retirement years. Your 401(k) is likely just one component of your larger financial plan and ensuring you have a comprehensive view of your retirement savings is key. Speak with your advisors to assess your overall retirement readiness and how your 401(k) factors into your larger portfolio. This is the time to answer important questions about the exact timeline to retirement and how your investment strategy is positioned.
  3. Determine where your 401(k) or 403(b) will be held when you retire – Once you do successfully retire, it is important to consider whether you will leave your retirement plan with your current employer and administrator or roll into an IRA. Regulatory changes have impacted this strategic decision, though it’s important to weigh your options. For example, an individual employed by a large organization will have inherent benefits to being invested in a larger plan, including often lower fees or a wider investment menu. But in most cases, IRAs offer a much larger menu of investment options. The decision can play an important role in your retirement income strategy, so it’s important to consult your advisor.
  4. Consider your distribution strategies and options – Employer-sponsored plans offer several strategic opportunities for investors. Increasingly, plans offer in-service distributions, which allows you to roll funds over to an IRA even before retirement. Additionally, some companies are introducing options for a self-managed component of the plan, opening investors to a wider universe of investments, including alternatives or mutual funds. This presents a tremendous tax-advantaged opportunity for investors. Beyond this, the Roth option is affording more investors tax-free savings opportunities. Each of these strategies need to be well executed to maximize their impact.

In 2020, the nation navigated a difficult year with the coronavirus pandemic, market recession, and implementation of various support and stimulus measures. While the pandemic was the ultimate black swan event, it serves as an important reminder to investors – particularly those nearing retirement – to ensure their savings are positioned to work for them, no matter the environment.

As we look to the future, there may be legislative changes on the horizon that will impact 401(k) savers. Our team is actively monitoring the potential changes and we stand ready to support you and create new solutions and strategies to keep your plan on track. Contact our team to learn how our financial advisors can answer your questions.