Tag Archives: Investing

Four Undervalued Retirement Strategies

Four Undervalued Retirement Strategies


EP05. Undervalued Retirement Strategies The Retirement Rabbit Hole

The Challenges of Reaching the Average Person in Sports Nutrition

In the field of sports nutrition, they face two challenges when developing new products.  

  1. Finding ingredients that work.  
  1. Packaging those ingredients into a product that the consumers understand and are willing to buy.  

It is possible for consumers to read the latest scientific research and implement their findings by purchasing the ingredients online. The average consumer is not likely to do this because the individual ingredients are unflavored and relatively expensive.

This results in a limited audience for these ingredients because their benefit does not justify the time and effort required to study and source them. 

This means new ingredients are not widely utilized until they can be packaged in a way that is appealing and cost-effective to the average consumer. Sports nutrition companies must create a product around the new ingredient and communicate the benefits in a way the average person understands.

They also must ensure their product is effective, reasonably priced, and tastes good to maintain their credibility as a brand.  

The Challenges of Reaching the Average Person Planning for Retirement

Something similar happens in retirement planning. There are strategies that can be beneficial to your retirement plan but are not widely adopted. This can be due to a lack of understanding of the benefits or an uncertainty of how to implement them. 

Unless they are working with a trusted advisor who can explain these concepts in a way they understand, the average retiree will forgo these strategies. An advisor can show how these strategies are combined into an overarching retirement plan and allows them to make informed decisions after seeing the potential benefits.  

The whole is greater than the sum of its parts

Aristotle

Four Undervalued Retirement Planning Strategies 

1. Global Diversification

A globally diversified portfolio is often unappealing given the recent outperformance in the US stock market. This trend could continue, but there is benefit in looking to invest in companies outside of the United States.  

2. Delaying Social Security

For those who have the luxury to postpone claiming their social security, the potential benefit of their financial plan can be massive. Often how it is framed can lead to individuals want to claim it sooner rather than later.  

3. Long-Term Care (LTC) Insurance

There is a high probability you or your partner may need some form of LTC. But people are often hesitant to buy something they may not need or use.

4. Estate Planning

Ensuring your affairs are in order. This may seem obvious, but many people postpone estate planning because they do not want to come to terms with things. It is an advisor’s job to help them through this process.  


These items may not be appealing but can be beneficial when incorporated into your retirement plan. Even if you decide against using these strategies it would be prudent to explore their potential benefits. Following a financial planning process ensures you review your earlier decisions and determine if your position in any area has changed.


Feel free to email us at info@westernreservecm.com with any questions you have. If you would like to schedule time with us to discuss your specific situation click here.


Gage Paul, CFP®, RICP®, EA

Gage Paul is a financial planner at Western Reserve Capital Management. He works with the firm’s clients to create sustainable financial plans and investment strategies.

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Rehabbing Your Investment Portfolio

Ep 04. Rehabbing Your Portfolio The Retirement Rabbit Hole

Rehabbing an Injury from Training

If you experience injury from exercising, a structured rehabilitation process may be recommended to help facilitate your return to training. The rehab process will include gradual exposure to movements and increasing loads to allow for proper recovery and to rebuild the individual’s self-confidence.

It is not uncommon for someone to be hesitant to resume training due to the fear of reinjuring themselves. While there is always a risk of injury when training there are also health risks from ceasing training that can gradually manifest if exercise is not resumed. 

How to Rehab Your Investment Portfolio

If you were invested in the stock market and sold out of a portion, or all, of your investment portfolio and went to cash the idea of reinvesting can seem daunting. Like getting injured while training, the idea of skipping the rehabilitation process and avoiding training can feel more comfortable in the short-term but can carry long-term consequences.  

Cash is Comfortable

Someone who holds an excessively large proportion of their portfolio in cash is similar to someone who lives a sedentary lifestyle. The potential negative consequences of not putting your cash to work do not manifest themselves until many years down the road when inflation has gradually eroded the purchasing power of that cash.

Investing a portion of your portfolio in stocks does carry market risks but the potential risks may be necessary to fund your future goals. Stocks provide the potential of growth above the rate of inflation and can help you maintain the purchasing power of your portfolio over time. 

How to Rehab Your Portfolio

I have provided a “Portfolio Rehab” process to resume stock investing for someone who has been “injured” by the market. This is not specific investment advice, but rather a framework to be applied regardless of your investing preferences and goals. 

Start with Why  

  • What is your purpose for investing?
  • Is your current portfolio allocated in a manner to allow you to achieve your set purpose?
  • If no, further consideration is needed to determine what changes can be made to give you a better chance of achieving your goals. 

Embrace the process  

  • There will be ups and downs along the way, as investment returns are never linear.  

Manage expectations  

  • Understand that market volatility is always a part of the investing process, and investing can be painful, but “hurt” does not always equal “harm.”
  • The goal is to set realistic returns and volatility expectations. 

Return to Investing  

  • Gradually and systematically increase your stock exposure until you reach your target allocation.
  • Using a systematic process that allows you to reinvest over time helps to remove the emotion from the investing decisions. 

Seek professional help   

  • If you are struggling with the idea of investing, having difficulty finding an entry point into the investing process, or have tried to proceed through this process without success, it is reasonable to seek out assistance from a trusted advisor.
  • This may involve someone local to you, or the team at Western Reserve Capital Management is happy to help. 

The thought of investing in the stock market can seem intimidating but following a systematic process to begin or resume investing in the stock market can be a useful way to increase your equity exposure over time.

The stock market exposes you to additional risks but when these risks are managed appropriately, it can provide you a greater chance of funding your long-term goals.  


Feel free to email us at info@westernreservecm.com with any questions you have.


Gage Paul, CFP®, RICP®, EA

Gage Paul is a financial planner at Western Reserve Capital Management. He works with the firm’s clients to create sustainable financial plans and investment strategies.


Resisting the Temptation of Trendy Investments


Progress is not achieved by luck or accident, but by working on yourself daily.

Epictetus

Trends in Nutrition

In the nutrition space, there is always something new to capture your attention. There are special diets, secret ingredients, or tactics that marketed to the masses in an attempt to get them to purchase something, often at a premium.

Once the initial buzz wears off there is always another new nutritional breakthrough and the marketing cycle repeats. People float from one trend to the next without ever making any lasting progress. Any results they do get are often short-lived or due to other underlying lifestyle changes, they made during that time.

Successful dieting is simple, but far from easy. The boring principles of consistency and hard work are not appealing when there are quick fixes to their issues. Anyone who tells you otherwise may have a vested interest in trying to convince you there are.   

Trends in Investing

A recent entitled Competition for Attention in the ETF Space by Ben-David et al. looked at a similar thing taking place in the investing space, where there were two kinds of exchange-traded funds (ETFs) being released.

Broad-based ETFs that generally hold low-cost, diversified (boring) portfolios and specialized ETFs that offer trendy themes and generally hold less diversified portfolios. The results in the paper suggested the trendy ETFs fail to add value but rather are launched to capitalize on a recent investment theme that has sparked the interest of unsophisticated (small) investors.

The paper stated the buzz around these specialized ETFs soon fades and they are then replaced by a different fund that attempts to capitalize on the next investing fad. Meanwhile, institutional (large) investors tended not to invest in these specialized ETFs but rather choose to invest in the low-cost diversified ETFs (Ben-David et al.).

The “Secret” to Investing

Successful investing like dieting is simple, but far from easy. The uniformed consumer often thinks there is a large amount of skill and specialized knowledge required to be successful. The reality is after learning the fundamental principles of investing, success is more a result of the investing process they follow, their ability to be self-reflective, and learning from their past experiences.

They likely found an approach that works for them and follow it diligently rather than spotting the next big trend and capitalizing on it. Some may consult investment experts for advice, but they do so for guidance on their journey and not for a shortcut to the finish line. 


Attention is a scarce resource and competition is often fierce in investing space. The idea that investing is not meant to be exciting, and you should get “rich” slowly does not create mass appeal. This leads to trendy products being pedaled to the uneducated consumer audience. These products tend to be more expensive and less effective than a less flashy alternative.

Understanding the fundamentals and following an approach that works for you will likely result in more meaningful outcomes than any single product could.


Feel free to email us at info@westernreservecm.com with any questions you have. If you would like to schedule time with us to discuss your specific situation click here.


Gage Paul, CFP®, RICP®, EA

Gage Paul is a financial planner at Western Reserve Capital Management. He works with the firm’s clients to create sustainable financial plans and investment strategies.

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Using Wealth Promoting Investing Patterns


Life is a matter of choices, and every choice you make makes you

John C. Maxwell

Make Every Bite Count with the Dietary Guidelines

In December 2020 the U.S. Department of Agriculture (USDA) released the Dietary Guidelines for Americans for 2020 – 2025. The dietary guidelines are science-based recommendations to promote health, prevent disease, and meet nutrient needs. The advice they give has remained relatively consistent over time and evolves as scientific knowledge expands.

They emphasize the guidelines are not a rigid set of rules but rather a customizable framework of core elements that allow individuals to make dietary choices that meet their personal preferences, cultural traditions, and budgetary considerations. They highlight the importance of healthy dietary patterns at every stage of life since dietary requirements change as people age. 

The Dietary guidelines encourage individuals to focus on eating primarily whole foods, choosing a variety of options for each food group, and paying attention to the portion size. They also encourage the limiting of foods and beverages higher in added sugars, saturated fat, and sodium (aka junk food.) 

The USDA realizes humans are not robots…and pizza is too good to never eat it again. This is why the guidelines, show you how to incorporate “junk” food in an otherwise health-promoting diet.

Make Every Dollar Count with Investing Guidelines

Just like how dietary guidelines are recommendations for health-promoting dietary patterns, investing guidelines (policy) can be used to provide recommendations for wealth-promoting investment patterns.

These guidelines are not a rigid set of rules but rather a customizable framework of core elements that allow individuals to make investment choices that accommodate their personal circumstances and preferences. Following these predetermined guidelines can help to create wealth-promoting investing patterns for every stage of life.

There is no universal diet, and there is no universal investment portfolio. A portfolio should be constructed base on an individual’s circumstances and focus on investments that can meet their needs while allowing for less efficient investments in limited quantities.

Just like with the dietary recommendations, variety (diversification), and portion size (allocation) are important considerations when implementing a balanced investment approach.

Allowing for Inefficiency

Similar to how the USDA shows you how to fit “junk” food into your diet, it is important to show investors how to incorporate less than ideal investments in an otherwise wealth-promoting portfolio. For some people, this means taking a portion of their portfolio and investing it in more “speculative” investments while for others it’s using that portion and stuffing it under their mattress.

Neither is right or wrong, but rather an outlet that allows someone to leave the core of their portfolio invested in a way that gives them the best chance of meeting their goals. Even if this means your overall portfolio is not the “most efficient” for your situation, having it set up in a way that allows you to handle market volatility and stay invested is far more important.


By using either dietary or investing guidelines you can customize the framework to meet you where you are and develop patterns that will drive positive long-term results. Consistent good decisions, however small they may seem, can make a huge difference when compounded over a lifetime.

Make every bite count, make every dollar count.


Feel free to email us at info@westernreservecm.com with any questions you have. If you would like to schedule time with us to discuss your specific situation click here.


Gage Paul, CFP®, RICP®, EA

Gage Paul is a financial planner at Western Reserve Capital Management. He works with the firm’s clients to create sustainable financial plans and investment strategies.

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Pain and Underperformance


The stock market is a device for transferring money from the impatient to the patient

Warren Buffett

What is Pain?

Everyone experiences pain from time to time. People often view pain as an indication of mechanical damage to an area of the body similar to the damage done to a part of a larger machine. Using this logic, if something “hurts” it always indicates “harm”, and therefore painful activities should be avoided. This isn’t necessarily the case.

Humans are complex organisms and can adapt to almost anything. Recent research has shown the experience of pain is complex and is related to the perception of threat and the need for protection rather than active tissue damage.

The perception of pain can be influenced by numerous “biopsychosocial” factors and the expression of pain can be met with a low level of fear where the individual has high self-efficacy and allow for recovery. 

Or if they instead catastrophize their experience of pain and have a high level of fear, they will have a low self-efficacy. This can cause them to avoid the pain and could inhibit recovery.      

With this in mind, we can view pain as not always as bad (harmful), rather as discomfort we all occasionally must deal with.

Pain in Investing

For many, investing can be seen as a “painful” experience, because you often expose a portion of your portfolio to investments that experience market volatility. When investing you must determine if the pain you are experiencing is indicating harm (damage) or is to be tolerated.

All investing involves risk, often when investing for the long-term you must expose a portion of your portfolio that will be exposed to the volatility of the market. The pain of market volatility may “hurt” but is not “harmful” and should be viewed as a fee you pay when investing in these types of assets.

A Potential Issue with Active Investment Strategies

Active investments’ offer the potential for outperformance relative to their benchmarks. Future outperformance is uncertain and underperformance relative to a benchmark is always a possibility. The use of active management depends on experience, talent, cost, and patience.

When implementing an active investment strategy, there will inevitably be periods where it underperforms its benchmark. The duration and magnitude of the underperformance cannot be known in advance.

This “active-risk” exposes you to a new kind of “pain” and you must ask yourself if the pain you are experiencing is normal or is there actual harm being done?

How to Manage Active-Risk

How much active-risk you are willing to accept should be determined in advance of implementing any active investment strategy. You must ask:

  • How much relative underperformance you are willing to accept?
  • How long will you allow any underperformance to be sustained?

This way you are not making decisions based on emotions but on pre-determined guidelines.

These pre-determined guidelines help to prevent you from making decisions based on emotions during the inevitable periods of underperformance.


Investing is painful enough on its own. Active management exposes you to a different type of risk and potentially increases the pain you experience. Investing is a means of reaching a desired future state.

It should be used as a way to maintain a certain level of wealth, with the possibility to incrementally increase it over time. Everything has a cost, even if it not currently apparent. There is no risk-free return.


Feel free to email us at info@westernreservecm.com with any questions you have. If you would like to schedule time with us to discuss your specific situation click here.


Gage Paul, CFP®, RICP®, EA

Gage Paul is a financial planner at Western Reserve Capital Management. He works with the firm’s clients to create sustainable financial plans and investment strategies.

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Gage Reflects on His First Investment 


My First Investment

I recently needed to make a copy of my Social Security card and had to go into my safe to get it. While looking for it, I can across a plastic cylinder with silver coins inside of it. These coins were my first “investment” I ever made and I had completely forgotten I had them.

I originally purchase these coins with the money I saved during a summer job as a server in-between my Freshman and Sophomore year of college. This was before I began any of my Finance course work, and had no idea about investing or the stock market.

Also, I didn’t know anyone in my family who invested outside of their 401(k) plan and had little guidance to turn to. I was certain my meager initial investment would not meet the minimums of a Financial Advisor, and I had no idea how to get into “the market”. The whole process seemed very intimidating and out of reach for someone in my position.

The idea was brought up of investing in physical silver coins since my uncle was familiar with doing that. So over the summer, I set an arbitrary goal for myself of saving $500 to purchase as much silver as I could get. Throughout the summer I gradually saved up the money and gave it to my uncle.

I am still not sure where he purchased the coins or how much each coin cost, but the result was my $500 was exchanged for a stack of coins that have sat in my safe ever since.

“Start where you are. Use what you have. Do what you can.”

Arthur Ashe

The Results of My First Investment

I decided to back-test my investment using $SLV ETF in place of my silver coins and compared it to the $SPY ETF which tracks the S&P 500. The chart below shows that the $500 I initially invest has lost money when adjusted for inflation, while the same $500 invested in a broad US-Stock market index almost doubled in value, even when adjusting for inflation. This analysis also ignores any transaction costs I would have paid when buying the silver coins.

Source: Portfolio Visualizer

At first glance, you would think I made a poor choice since my investment did not beat the market or even keep pace with inflation. However, I view this as a learning experience that certainly provided more value than the $500 I could have made If I were invested 100% in stocks. I view this as a form of tuition to the “school of investing” and I glad I was able to pay this fee early on in my investing career when stakes were much lower.

I also know I could have put it towards college expenses so that I would have less student loan debt after graduating, but younger Gage would have probably used that money on Pizza or Proteins shakes instead of tuition.

I have no intention of selling my silver anytime soon, partly because I am not entirely sure how, but I will not look to purchase any more precious metals in the near future. These coins serve as a reminder to me that you are influenced by your surroundings, and education is needed to help make the most of someone’s positive intentions.

I too often take for granted that investing can be intimidating to some people. Everyone has to start somewhere, and there should not be any judgment placed on that person for not knowing “better.” They are likely doing the best they can with the resources they were given.


Feel free to email us at info@westernreservecm.com with any questions you have. If you would like to schedule time with us to discuss your specific situation click here.


Gage Paul, CFP®, RICP®, EA

Gage Paul is a financial planner at Western Reserve Capital Management. He works with the firm’s clients to create sustainable financial plans and investment strategies.

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How Much “Risk” Must you Take?



“The Dose Makes the Poison.”

Paracelsus

What is the Minimum Effective Load When Training?

In strength training, the idea of “minimum effective load” is doing the smallest amount of work to generate the stimulus needed to get the desired response. Anything beyond that could generate greater fatigue than necessary and be detrimental to your long-term progress in the gym. This often leads to a feeling that you could have done more or “worked harder” than you did. 

I know from personal experience this concept has been difficult for me to adopt. I used to think more was always better, but have since realized sometimes more is just more. There came a point where I had to decide between training just to get tired and sweaty and training to make progress towards a goal.     

What is the Minimum Effective Risk When Investing?

In investing, especially for retirement, you want to adopt a strategy that provides you the highest likelihood of achieving a desired future state. For many, this desired future state is maintaining a certain level of wealth that allows for an independent and dignified retirement. When creating your investment strategy, you know you must assume a certain level of risk.

This is where you could determine what is the “minimum effective risk” you must take in your portfolio. Meaning you only want to expose your portfolio to as much risk as necessary to meet your short-term and long-term goals. Taking risks above the required amount, provide you with diminishing marginal benefits on the upside but could be disastrous on the downside.

This is where you must decide if you want to make incremental progress over time or just end up being repeatedly tired and sweaty, with little to show for it.

“Risk is what is left over when you think you thought of everything.”

Carl Richards

Risk presents itself in many forms and changes with time horizons. Something that provides you desired certainty in the short-term is likely to provide undesired certainty in the long-run. Finding the balance here is an art rather than a science.

Often, we have competing desires of wanting to make the most of today and planning for tomorrow. Guidance with this issue is often helpful, but the decision is ultimately yours.


Feel free to email us at info@westernreservecm.com with any questions you have. If you would like to schedule time with us to discuss your specific situation click here.


Gage Paul, CFP®, RICP®, EA

Gage Paul is a financial planner at Western Reserve Capital Management. He works with the firm’s clients to create sustainable financial plans and investment strategies.

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Glass Half-Full Thinking


Retirement Planning in “Normal” Times

When planning for retirement we encourage people to envision what they believe their future life will look like. In normal times, people extrapolate the trends and technologies of today in a linear fashion into the future. A good example of this is “The Jetsons” which was set in 2062.

While flying cars and robot maids are still a distance proposition, they will likely look nothing like what was depicted in the original cartoon. The creators of “The Jetsons” simply used the technology they had at the time and futurized it. They had no idea innovations that would actually take place between 1962 and 2062.

Retirement Planning in Our Current Reality

If we were to ask someone to envision the future retirement based on what happened in 2020, they could likely imagine a future you would not want to be a part of. With a global pandemic, economic uncertainty, and divided nation, it is very easy to find things to be negative about.

Reasons to be pessimistic is tend to dominate the news and you often have to look for reasons to be optimistic. Below are three books that I found helpful in allowing me to think more optimistically about the future:

3 Books to Shift Your Mindset

These books detail how life is better than we may think. Violence, global poverty, and child mortality all are decreasing. Human innovation and technological advancement are happening at an increasing rate. Progress is always taking place, even though it may not be directly visible to us.

Shifting Your Mindset

A positive mindset can be thought of as a “muscle”, meaning the more you train yourself to look for the good things, the easy it becomes to find them. If you are fortunate enough to be reading this post, there are likely millions, if not billions of people who would consider your current life to be the “dream life.”

Long-Term Optimism as an Investment Philosophy

“The first rule of compoundingNever interrupt it unnecessarily.”

Charlie Munger

To allow a long-term optimistic investment philosophy to play out, you must secure yourself from the inevitable short-term crises. This security is money not exposed to market risk, used to provide a buffer to meet your current spending needs, and allow your assets exposed to the markets to remain untouched.

The size of this buffer is viewed as “X” number of years of future spending. The actual dollar amount can vary greatly from person to person but should be large enough to allow you not to have to sell long-turn investments during a market downturn. This can also be viewed it turns of having enough set aside to allow you to sleep soundly when markets are manic.

“Doubt is an uncomfortable condition, but certainty is a ridiculous one.”

Voltaire

Disasters are inevitable, markets will boom and bust. Through all of this, we will continue to innovate and change for the better. Uncertainty of the future will always be present and optimism may become scarce. Prepare for these times, but have faith that a better future will prevail.

What Steps Can you Take Today?

  • Think of 3 things you are grateful for
  • Determine how much of a buffer you need for short-term expenses
  • Create an investment strategy that allows you to take advantage of the long-term potential of the markets.

Feel free to email us at info@westernreservecm.com with any questions you have. If you would like to schedule time with us to discuss your specific situation click here.


Gage Paul, CFP®, RICP®, EA

Gage Paul is a financial planner at Western Reserve Capital Management. He works with the firm’s clients to create sustainable financial plans and investment strategies.

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How to Handle the Certain Uncertainty in Investing


Ep 01. The Sky Is Always Falling The Retirement Rabbit Hole

The Sky is Always Falling

I am sure you are familiar with the story of Chicken Little and the phrase, “The sky is falling!” In this tale, a chicken has a mistaken belief that the world is coming to an end. Versions of this story have been told for more than 25 centuries.

The premise of this tale is an imagined thought based on a perceived notion that the scenario, as in Chicken Little’s case, an acorn falling from a tree, signals that the end of the world is coming. And of course, it could be different this time, just as it is has been every other time.

I, by no means, want to downplay the severity of the current circumstances and the real impact it has on the individuals affected. The end of “your” world is no different from the end of the rest of the world.

I am being intentionally vague because events and circumstances will change. But fear, uncertainty, and doubt can always be found.

What can you do to deal with the uncertainty?

1. Turn Off The News

News platforms make money selling your attention to advertisers. These platforms must compel you to watch and then their advertisers must convince you to transact. The unfortunate truth is that showing a long-term optimistic outlook on things and preaching, “stay the course” does not tend to attract as much attention to viewers.

Therefore, that content doesn’t incentivize advertisers to purchase commercial spots since their intended audience is one with ‘problems’ so they target and attempt to sell their solutions to viewers. By not indulging in this form of media we can avoid the current issue plaguing the markets and focus on things where we specifically can control the outcome.

2. Confront Your Fears

Ask yourself, “What if X event were to happen?” Define the ramifications of this happening. What are the possible scenarios that could take place? Think through the worst-case scenario and the implications of that. This will expose what is behind your fears.

Then think of anything you could do to prevent the negative outcome if “X” were to happen. Is there anything you have direct control or influence over? Can your action mitigate the negative outcome?

Finally, if “X” takes place, what could you do to repair or fix what happened? Is this something you will be able to recover from or would the event result in a permanent loss?

3. Take Action (or not)

Often when we feel we don’t have control of a situation we lose our sense of self-efficacy. But if you can determine there are things you can do to have a positive impact, this will help you feel in control. Oftentimes, the best thing to do is nothing.

There is often nothing you can do to prevent “X” from happening but understanding this gives you the ability to exhibit courageous inaction.


There are countless platitudes about the uncertainty in investing I could use. In the end, you must try to do what Reinhold Niebuhr said and accept what you can not control, have the courage to change what you can, and have the wisdom to know the difference. No matter what happens you control your attitude in any given circumstance.

Feel free to email us at info@westernreservecm.com with any questions you have. If you would like to schedule time with us to discuss your specific situation click here.


Gage Paul, CFP®, RICP®, EA

Gage Paul is a financial planner at Western Reserve Capital Management. He works with the firm’s clients to create sustainable financial plans and investment strategies.

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What can you do with a 401(K) from an old job?


Do You Have an Old 401(K)?

When you leave your current employer, you may not be exactly sure what to do with the money in your former employer’s 401(K) plan. I have listed available options and detailed the factors to consider to help you make an informed decision.

The Options Available to You

  • Keep the money in your old employer’s plan (if allowed)
  • Rollover your assets into an Individual Retirement Account (“IRA”)
  • Rollover your assets to another employer-sponsored plan (if applicable) 
  • Take a distribution in cash from the plan 

Each of these options has advantages and disadvantages and should be considered carefully. This includes any applicable fees you will pay and all the features each option could provide you. Deciding to roll over plan assets to an IRA should reflect consideration of various factors, the importance of which will depend on your individual needs and circumstances. The following are general factors that you should consider when making your choice. 

Factors to consider for keeping your money with your former employer’s 401(k) plan:

Tax Deferral

  • Your money will continue to have tax-deferred status within the plan.

Additional Withdrawal Allowances

  • There is no federal tax penalty for withdrawals if you are age 59 1⁄2 or separated from employment during or after the year you reach age 55.

Low-Cost Investment Options

  • You have access to low-cost mutual funds or other investment options not available in an IRA, such as company stock, fixed annuity contracts, or stable value options. Also, you would not need to change your current investment strategy in the plan.

Protection from Creditors

  • Assets in a retirement savings plan such as a 401(K) or 403(B) are generally protected from creditors and legal judgments, while assets in IRAs receive more limited protections from creditors.

Deferral of Required Minimum Distributions (RMD’s)

  • Your employer-sponsored retirement plan may offer this feature if you are currently working for the sponsoring employer, over age 72, and do not have a 5% or more ownership in the employer.

Possible availability of Company Stock as an Investment Option

  • If you hold company stock in your employer-sponsored plan, you should consider the tax impact of net unrealized appreciation.

Outstanding Loan Balances

  • If you leave your employer, you may be able to continue repaying any outstanding loan.
  • Alternatively, you may be required to repay the loan in full or have it become taxable. (Consult with the Plan’s Administrator to determine the consequences of any outstanding plan loan.)

Possible Plan Limitations

  • Accounts of inactive or retired participants may have limitations, such as restrictions on plan loans, you may no longer be able to contribute to the plan, or your old employer could change plans or plan provisions in the future.

Factors to Consider if you Roll Over Assets Into an IRA from a 401(K):

Tax Deferral

  • Your money will maintain its tax-deferred status. No taxes or penalties are applicable for direct rollovers.

More Investment Options

  • IRAs generally allow for a broader range of investment options, which may include mutual funds, exchange-traded funds, stocks, and bonds.

Consolidation of Retirement Accounts

  • Combining all retirement plan accounts into a single IRA may make it easier to track your assets.
  • It also may make it easier to manage required minimum distributions required under federal tax laws.

Inability to Take Loans

  • You will not have the ability to take penalty-free withdrawals as a plan loan.

Limited Access to Monies Prior to age 59 1⁄2

  • Your access to IRA assets prior to age 59 1⁄2 will be limited to certain specific circumstances, such as first-time homebuyers and higher education expenses.

Potential Conflicts of Interest

  • Your financial professional may have a financial incentive to recommend an IRA rollover because of the compensation that he/she may receive when you transfer funds from an employer-sponsored retirement plan.
  • This potential conflict also pertains to situations where you are a participant in a plan and your financial professional is a fiduciary to the same plan.

Loss of Plan Options

  • You may lose certain options offered by your former plan, which may include, but are not limited to, guaranteed interest rates, death benefits, and protection from creditors (under certain plan types).

Potential Charges for Rollovers

  • There may be higher costs associated with a rollover and surrender charges could be imposed by the plan provider if the account included an annuity.

Additional Services

  • IRAs generally offer access to more client-related services, including investment advice and management services.

Factors to Consider if you Roll Over Assets Into Your New Employer’s 401(K):

Tax Deferral/Additional Withdrawal Allowances/Low-Cost Investment Options/Protection from Creditors/RMD Deferrals

  • If you move your assets into a new employer’s retirement plan, you may likely receive similar benefits such as these, as noted above.

Consolidation of Retirement Accounts

  • It may be easier to track your assets and manage your retirement plan accounts with all your money in one place.

Plan Limitations on Accepting Rollover Assets

  • Your new employer’s 401(K) plan may not accept rollovers and you must check beforehand.

Possible Limitations on Access to Funds Rolled into the Plan

  • Check with the receiving 401(K) plan to confirm the plan does not impose any restrictions on your ability to access or withdraw funds rolled into the plan.

Factors to Consider if you Take a Cash Distribution:

Withdrawals May Be Subject to Withholding, Penalties, and Other Charges

  • The withdrawal will be subject to mandatory tax withholding, as well as applicable tax penalties for early withdrawal (with limited exceptions) if you are under the age of 59 1⁄2.
  • You may also be subject to surrender charges or penalties assessed under the terms of the applicable investment.

Additional Things to Consider:

Plan Costs

  • Fees and expenses are factors that will affect your investment returns and your retirement income.

Types of Costs

  • Both employer-sponsored plans and IRAs typically involve (1) investment-related expenses and (2) plan or account fees.
  • Investment-related expenses may include sales loads, commissions, the expenses of any mutual funds in which assets are invested, and investment advisory fees.
  • Plan fees typically include plan administrative fees (e.g., record-keeping, compliance, trustee fees) and fees for services such as access to a customer service representative.
  • In some cases, employers pay for some or all of the plan’s administrative expenses.
  • IRA account fees may include, for example, administrative, account set-up, and custodial fees.
  • You should identify and understand all of the fees and expenses associated with your current retirement plan account, any new retirement plan into which you contemplate a rollover, and any potential IRA.

Documentation

  • You should collect any and all documentation you have available in order to track what costs you currently pay.
  • Documents such as your plan’s “Summary Plan Description” or “404(A)(5) Fee Participant Disclosure” will give you this information and can be requested from your Plan’s Administrator or human resources department.

The Comparison of Services and Investment Types

  • The types of services and investments available to you in your current retirement plan and any recommended rollover may differ. Working with a financial professional could provide you with additional services such as customized investment strategies, cash flow analysis, financial planning, retirement planning, distribution planning, or other possible services that may not be available to you in your 401(K) plan.
  • You may also have access to investment types such as individual bonds, common stock, mutual funds, exchange-traded funds, or alternative investments that are not offered in your 401(K).

Hopefully, this was helpful and you feel more informed about the things you can do with the money in your former employer’s 401(K) plan.

Feel free to email us at info@westernreservecm.com with any questions you have. If you would like to schedule time with us to discuss your specific situation click here.


Gage Paul, CFP®, RICP®, EA

Gage Paul is a financial planner at Western Reserve Capital Management. He works with the firm’s clients to create sustainable financial plans and investment strategies.

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