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How Retirees Decide Whether to Roll Over Their 401(k)s

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When American workers with significant assets in their defined contribution plan had to decide what to do with the money after they left full-time employment, 62% in a recent survey moved it out of the plan, and the vast majority did so with the help of an advisor.

Slightly more than half of those who left their money in the plan had professional advice.

The American College of Financial Services, which offers coursework for the certified financial planner designation among others, in October polled 1,002 Americans recruited through the Research Now online panel.

To participate, respondents had to be at least 60 years old, to have retired from full-time work within the past three years and to have had at least $75,000 invested in their former employer’s 401(k) or 403(b) plan at the time of retirement.

IRA rollover activity will continue even as the U.S. Department of Labor’s proposed fiduciary rule is about to go into effect.

The American College’s survey focused on how respondents decided what to do with their money, and how well they did this.

Seventy percent of retirees said the probability of improving performance was the main reason they rolled over their assets, and 68% said it was to consolidate assets.

Two-thirds of those who kept their money in the retirement plan said they liked the investment options. Nearly half of these retirees said it was easier to leave things as they were.

“The good news here is that the retirement income message is breaking through,” The American College’s co-director David Littell said in a statement. “The vast majority of consumers we surveyed recognized the importance of the rollover decision and were careful with their decision making.”  

Littell noted, however, that those who took the passive approach of leaving their money in the plan were less likely to be concerned about the rollover decision, to work with an advisor or to create a comprehensive plan.  

“So clearly there’s much more work to be done,” he said. “It starts with the financial planning experts on the front lines of educating and guiding retirees.”  

The poll found that 89% of the active group who rolled money over with the help of an advisor were likely to have a comprehensive retirement plan, reflecting retirement income planning strategies, compared with 71% who did so without the help of an advisor.  

More than 90% of respondents with a financial plan reported that their plan had an estimate of the amount of retirement income they would receive each year, as well as a where it would come from each year and an estimate of how long their income would need to last in retirement.  

Seventy-three percent of those who worked with advisors said their plan included targets for how their assets would change over each year, compared with 61% of respondents who did not work with advisors.

At the same time, 59% of retirees reported that advisors were less likely to include how to pay for long-term health care in their comprehensive plan, and 55% said their plan did not include legacy planning.

The findings pointed to another benefit of working with an advisor. Eighty percent of retirees liked that advisors could review their financial planning and point out things they had missed.

Respondents also raised a concern about the investment of assets. Only 34% said they felt extremely or very knowledgeable about investing and investments, and just 43% were highly confident about making decisions about savings and investments on their own without an advisor.  

Check out Fiduciary Rule Can Create Opportunity for Retirement Advisors on ThinkAdvisor.