If you're switching employers -- either by choice or by necessity -- you'll also have to do some switching with your 401(k). You have choices, and the answers aren't obvious. If you find yourself in that situation, certified financial planner Radon Stancil provides some valuable 401(k) advice.
Stancil thinks that workers should see this as a time of opportunity, a chance to take the control of their retirement away from a 401(k) plan administrator and into their own hands.
"Take the time to really understand what risk means to you, what your risk intolerance is, and how much you will need to save," he says. "Get your head wrapped around it."
Some people choose to roll their company plan straight over to another employer when they get a new job. There's nothing wrong with that approach, but Stancil advocates a different path: converting your 401(k) to an individual retirement account.
You can consider that self-serving, if you want. Stancil is a certified financial planner and gets paid to help people set up IRAs and the like.
But he points out that most 401(k) plans are limited to 10 to 15 investment options at most. Workers have no say in the matter if the company changes plan administrators or if the fees increase.
"It is not the employee plan; it is the company plan," he says, so it's designed for what's best for the company's employees as a whole, not individuals.
Stancil and Rick Parkes, his partner at Diversified Estate Services in Raleigh, say they're hearing more and more from people who, at age 50 and 55, see their layoffs as basically a forced retirement."They don't know when or if they can get another job, and they're wondering, 'Can I go ahead and retire? Can I do that?'" Parkes says."They don't want to outlive their money; that's the biggest concern for them. It's a bigger fear than death, according to one survey last year."Many people think they need a million dollars or more to survive their retirement years, but the true amount depends on how they live."Some people live fine on their Social Security payments and pension," Stancil says . They're frugal, and because they always have been, they usually have amassed more money for retirement, he says. They may have $200,000 to $500,000 put away, and it will see them through, he says.On the other hand, if you're now blowing through a couple of hundred thousand a year, you'll need a whole lot more in savings to maintain that lifestyle.Here are a few other nuggets I gleaned from the two gentlemen.Don't draw from your retirement savings at the first sign of trouble. "It's the last place to dip in," Parkes says. "You'll double your trouble. You'll have taxes to pay and a 10 percent penalty if you're not yet 591/2. ... That's a hard hit."
What if it's a choice between raiding your retirement and losing your home? It depends on what you plan to do with the money, Stancil says. Some people think they'll get enough out to make the house payments until they get a new job. But if the job doesn't materialize, then they've ended up losing their home and their retirement.And remember, if you're forced into bankruptcy, retirement savings plans that fall under the Employee Retirement Income Security Act are protected from creditors. IRAs, too, are generally protected.Don't take out a hardship loan from your 401(k) to tide you over if layoffs are looming. You will have to pay the loan back within 60 days after you're laid off. If you don't pay it back, you'll owe taxes and penalties on the money. Also, if you do end up in bankruptcy, creditors can claim any of the loan money you may have banked.Don't freak out. If retirement is around the corner and your savings don't seem up to meeting your needs, you could be tempted to invest more aggressively. Stancil doesn't suggest it."There are arguments for both sides," he says. "But the problem is that can wipe [your 401(k)] out. My opinion is to keep investments relative to your environment." In other words, look for other ways to make money and ways to cut back to cover the difference.