Benefits of Consolidating Retirement Accounts
Don't Leave Any of Your Retirement Accounts Behind
Most people work for many employers over their lifetime. When that is the case, its easy to accumulate lots of different retirement funds that are saved in many different banks, brokers, or employer accounts. There are a few reasons that this can work against your retirement goals.
First, money out of sight is often out of mind. If your money is sitting in accounts that are no longer active you are less likely to manage your investments well and are more likely to miss out on better returns. The longer a retirement fund is neglected, the more out of whack the investment can get and the lower your returns.
More importantly, old accounts can easily be forgotten about and never recovered. For example, in Australia, where retirement accounts are mandatory and the superannuation funds are often spread across many different banks, it is easy to forget about old accounts. If this is the situation, you can get help finding lost superannuation funds and consolidate them with your main retirement accounts.
Another reason to consolidate your old retirement accounts is to save on fees. Most employers charge a fee to manage your accounts, especially if you are no longer an employee. These fees, while they seem small, can add up to a large amount over the years. For example, if they charge a 2% fee and you are earning 5%, the 2% fee is actually 40% of your returns (2/5).
How do you consolidate your accounts? That's easy. You can open an account at nearly any online broker and transfer the money there. If you open the proper accounts, you won't even have to pay taxes or a penalty on most transfers. Then, you can manage all of your investments in the same location, pay less fees, and have the opportunity to invest in nearly any investment you choose. Of course you should choose the low fee options like ETFs and low cost mutual funds over the traditional retirement funds (in my opinion, because of the point mentioned above).