The COVID-19 pandemic brought about a phenomenon known as the “Great Resignation,” where a record nearly four million people left their jobs in 2021. Amidst this Great Resignation are many people who are choosing to retire rather than go to another job.
The pandemic has accelerated Boomers’ retirement plans, with the Great Resignation seeing more than 3.5 million individuals aged 55 and older retire in the past two years alone. Based on these figures, the Great Resignation could just as easily be dubbed the “Great Retirement.”
In a recent blog post from Nationwide Financial, George Schein, technical director for the advanced consulting group at Nationwide Retirement Institute, wrote that recent retirees who participate in a defined contribution plan have three options: leave the account with their former employer’s plan, roll over the account into an individual retirement account (IRA), or cash out the account.
Leaving a retirement plan account in a former employer’s plan is the easiest course of action and may make sense if recent retirees are happy with their current investments and plan provider. However, some large employers may charge former employees higher fees than current employees. Plus, some smaller plans having difficulty achieving scale may also charge more.
Rolling over a retirement plan account to an IRA after retiring is also common, and depending on the circumstances, often the best long-term approach. In addition to the potentially lower management and administrative costs, an IRA allows retirees the freedom to invest in any mutual fund, stock, or other investment opportunity of their choice.
Being able to consolidate retirement accounts is another benefit, as is offering better control over partial distributions. An IRA can also provide several possible tax-planning strategies.
Cashing out a retirement plan account when retiring should be avoided if possible. If a retiree cashes out their entire plan, the total pre-tax amount of that account is subject to federal and state income tax. Taking out a single lump sum may also bump the retiree up into a higher tax bracket. Not to mention, once the plan is cashed out, it’s easier to spend before the end of the retiree’s life.
“As financial professionals, we must be ready to guide our recent retiree-clients through this very important financial decision,” wrote Schein. “In doing so, it will be important to help them consider their plans for their Golden Years while taking a comprehensive look at their current investments and strategy to make sure they will have the funds they need to finance their retirement years.”
Nationwide offers a variety of actively managed ETFs for advisors that cater to a range of investment exposures and strategies for those seeking retirement income options for their clients as part of their bigger retirement planning pictures.
For more news, information, and strategy, visit the Retirement Income Channel.