Don't Let Your Retirement Savings Sit Idle: Be Smart About Your 401(k) Rollover

If you're like many retirees, you've spent years diligently saving in your 401(k). However, one common mistake could cost you thousands: leaving your 401(k) rollover balances in cash. When people move their savings from an employer’s 401(k) plan to an individual retirement account (IRA), the money is often held in cash until investments are selected. This mistake is costing Americans billions in lost investment opportunities each year.

Common Rollover 401(k) Mistake

When you roll over your 401(k) into an IRA, the money isn’t automatically invested in stocks or bonds. Instead, the money sits idle in cash until you decide to invest it. The longer your retirement savings sit in cash, the larger the missed opportunity for investment growth. For retirees, this can mean the difference between a comfortable and a constrained retirement.

Vanguard refers to it as the ‘sticky IRA cash trap’. Vanguard’s analysis found that 28% of rollover investors left their money in cash for at least 12 months.

This seemingly harmless mistake can lead to significant financial losses, costing the average IRA saver between $67,000 and $164,000 in lost gains. That's a substantial amount, especially when you consider the long-term impact on your retirement lifestyle.

Certain groups of people are more likely to leave their rollover balances in cash: women, younger investors, and those with smaller balances.

So, why do so many investors keep cash on the sideline? A Vanguard survey reports the most common reasons are related to not understanding how their assets are invested or inadvertently believing their money is automatically invested.

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How to Avoid this Common Rollover 401(k) Mistake

How can you ensure that your retirement savings are working as hard as they can?

- Pay attention: Review your monthly statements and keep a close eye on your portfolio. ‍

- Seek professional advice: A Certified Financial Planner (CFP®) professional can provide personalized guidance to ensure your money is invested in a way that is aligned with your risk tolerance and retirement goals. ‍

- Stay informed: Continuously educate yourself about investing.

Final Thoughts

As a financial advisors at Sensible, we help retirees live their ideal retirement through a simple and affordable approach to investing. By avoiding common mistakes like leaving your 401(k) rollover balances in cash, you can significantly improve your chances of a successful retirement. 

Remember, your retirement savings are meant to grow. Don't let them sit idle.

Need help with retirement planning? Schedule a no-strings-attached call with us today to learn more. 

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This blog article is for informational and educational purposes only.
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Sources: 

Vanguard: The Sticky IRA Cash Trap
Vanguard: Out of Sight, out of Mind‍
Barrons - IRA Investors

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