Here’s a little known fact that will allow you to do amazing things to protect your 401-k from the next market drop and to get a leg up on preparing for retirement.
Most larger company 401-k plans have an obscure provision that will allow you to rollover your 401-k into an IRA (if you are 59 1/2 years of age or older) and still continue to participate in your plan. You can continue to make pre-tax contributions, receive company matches and grow your savings tax deferred.
This is an incredibly smart thing to do and here are 3 reasons why:
1) While 401-k’s make great accumulation vehicles when you are in your 20’s, 30’s and 40’s, when you are in your late 50’s to early 60’s they are an extremely poor vehicle to protect your gains going into retirement. Most 401-k plans have a very limited menu of investment choices to choose from, and they all contain a high level of risk. By rolling your 401-k into an IRA you have literally 1,000’s of investment choices and a multitude of strategies now open to you. In addition, your retirement moneys can now be professionally managed. You can have world class talent help you with fund selection and risk management. You don’t have to continue doing this by yourself.
2) Within an IRA you can begin structuring an income strategy for your retirement. Before we retire we most frequently focus on growth, but after retirement we quickly understand the importance of dependable, safe income to pay our bills and to protect our lifestyle. Having a 5 year head start in creating retirement income is hugely powerful. It can make a limited amount of money go a very long way towards supplementing your Social Security income. Given the extra years your savings are in an IRA, you can effectively create a private “pension plan” that you control and that stays in your family.
3) With the freedom to choose virtually any investment for your 401-k funded IRA it is much easier to manage the risk of your portfolio and to protect your savings of 20 to 30 years. And you must do so. A large loss in your savings this close to retirement will have a devastating effect on your retirement plans. You will either have to work longer or live smaller or risk running out of money before you run out of life.
The right time to use this strategy is as soon as it is available to you (59 1/2). Get some help, create a plan and enjoy a stress free retirement.