Financial Planning

Moving money matters

DATE | 04/22/24
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Moving money from your retirement accounts should not be done hastily. It may be one of the most impactful financial decisions you make in your lifetime.

Let’s assume you’ve been saving for retirement for years in a 403(b) and/or IRA savings account. Your account balance is looking pretty healthy. And it’s feeling good to know your efforts over the years are paying off for your future.

But now you’ve started receiving mail from financial advisors/brokers offering a free meal along with the opportunity to learn how you can earn more on your investment. Or maybe the local agent who has been dropping by your classroom is sharing how he’s helped several of your colleagues around your age manage their investments. It gets you wondering—are you with the best provider for your retirement needs? Should you stay, or should you go?

Before you do anything, stop and ask yourself—why are you suddenly on their radar? Because you’re a real catch. People who have been saving for a while or are already retired tend to receive a lot of attention from investment brokers and agents because they’ve already done the hard work of building their nest egg. That can mean opportunity for someone who makes their living selling investment products and services. It’s simply a fact that the financial industry is huge and profitable, and there are strong incentives for someone who sells investment products to start a relationship with you—especially if you have accumulated some net worth.

Proceed with caution

Occasionally Member Benefits staff receive a request to transfer a retirement account from or to another financial institution for consolidation purposes. Housing all of your investment accounts with one financial advisor can simplify your financial life—but determining the value proposition of a transfer isn’t as straightforward as you might think.

Before moving your money you need to understand—really understand—the implications of your decision. That means knowing what you are buying, exactly how much it will cost, and what you stand to gain (or lose) from the move. This requires you to dedicate some time to gathering the necessary information and doing your due diligence.

“Rolling money over into an IRA annuity or another investment vehicle can be very lucrative for a broker,” says Brenda Echeverria, Financial Planning Supervisor for WEA Member Benefits. “It’s not uncommon for a broker to earn 5% or 6% right off the top. Bringing in an account worth $100,000 would mean a commission of $5,000 or $6,000.”

Guide your decisions

Is that a fair and reasonable price for you to pay? How do you know? It depends on what you are getting and whether you think the benefits justify the cost.

Here are some things to consider, questions to ask, and actions to take to help ensure you make the very best decision for you.

Keep your emotions in check

When it comes to your savings—the money you will rely on in retirement—the stakes are high, so it’s important not to jeopardize your financial well-being by letting emotions influence your decisions. “Fear is a major factor,” says Brenda. “People are afraid they won’t have enough money, then they hear about what others are doing and wonder if they should be doing it, too. Emotions can be useful in driving people to take action, but they can also lead to disastrous results if those emotions drive the decision. It’s why people chase the market or get out when the market drops.”

Brenda says it is also common for educators to feel compelled to use the services of someone they know from the community. “It might be the spouse of a friend or neighbor. They don’t want to hurt their feelings or tarnish the relationship by saying no to their offers or suggestions.” Remember—this is a business transaction, not a social event. They are not doing this as a favor. This is how they make a living. The point is, whoever you decide to work with, make sure you do it for the right reasons.

Don’t believe everything you hear

We often hear from our participants that they were told from other brokers they need to move their retirement money from Member Benefits because they can’t stay in our plan, or that they can’t roll over into a new employer’s plan, even though that may not be entirely true. Brenda says, “Members call and say, ‘the broker I talked to said I have to move my money out of my 403(b) now that I’m retired or have changed careers.’ This is inaccurate information that could result in a poor financial decision for that member.” Information such as this should always be validated by your provider before you take any action. The fact is, your Member Benefits’ 403(b) and IRA accounts can remain with us whether you retire, change districts, or change professions. Don’t take someone else’s word for it.

Uncover the costs

You wouldn’t walk onto a car lot and ask the salesman to pick out the best car for you without asking how much it costs. But people do this all the time with investment products.

When you are talking fees with the advisor/broker, ask for a list of all the costs and identify which are one-time fees and which are ongoing. “Many times the fees are not obvious or easy to understand,” says Brenda “There are often layers of costs beyond what the person you are talking to has explained.” For example, you may be charged other fees associated with the product that the agent doesn’t receive which go to the company. And if you are adding premium services such as ongoing investment advice, you’ll typically pay a percentage of your assets on top of fund fees.

Is it worth it? Maybe, but adding layers of fees can cut the chances that your money will last. “It helps to convert any percentages to actual dollars. I often hear, ‘it’s just 1%,’ but when I convert that into a dollar amount for them, it’s an eye-opener,” says Brenda.

Fees to watch for and quantify include:

  • Commissions
  • Mortality and expense (M&E) fee
  • Management fees
  • 12b-1 fee
  • Annual contract charge
  • Custodial fee
  • Surrender charge
  • Wrap account fee

Every dollar you pay in fees is not earning interest in your account. So consider the potential earnings you’re losing out on as well.

Identify restrictions

As a general rule, the more guarantees or promises you are getting with a product, the more restrictive the withdrawal options. Most annuities have surrender periods of 5 to 7 years. This means you are basically locked into the contract for that period of time and can’t withdraw your money without paying surrender fees, which can run as high as 7% of your account balance depending on the longevity of the account.

It can be difficult and costly to undo certain money moves. However, for some investments such as annuities and insurance products, there is a 30-day free-look period during which you can cancel. “I have talked with people who didn’t realize that the move limited what they could do or that they are locked in to a surrender period,” says Brenda. While participants in our IRA and 403(b) can keep their accounts with us for as long as they want and continue to take advantage of our low fees, if an account is closed out, there may not be an opportunity to come back. Brenda explains, “When you retire, you are no longer eligible to open a 403(b) account because you are not working. Once the account is closed, there’s no coming back. I can’t tell you how many retired people I have talked to who want to come back because they moved their money and were not happy. Unfortunately, I have to tell them they can’t.” Before you close your account, give us a call to learn about what this means for your eligibility to return.

Get help

Member Benefits recognizes there are times when participants need some face time with an expert regarding their investments and plans for the future. What really sets our services apart from other investment advisors or brokers is that Member Benefits retirement consultants and financial advisors do not receive commissions, so you receive unbiased information. Our staff can answer questions you have about our program or other products you might be considering. We can help guide you through the evaluation process so you can make the best decision for you.

Another question to ask someone you are considering working with is, “are you a fiduciary?” “I am,” says Brenda. This means the financial advisor has made a commitment to work in the client’s best interests at all times and puts YOUR needs before THEIR needs.

Before you decide whether you should stay or go ask yourself: Is it worth it? Only you can determine if what you receive in return justifies the cost. Whatever you decide, make sure it’s the best decision for you and your situation.

This is the first article in our series. Read more: