Leaving my job -- should I move my retirement money?

[OzzieandHarriet]

I am heading into my last week on my job. (!) I am not retiring exactly -- I will be freelancing, but not earning much money, especially at first. I am 55, almost 56, so the time when I would need to draw money out of my retirement accounts is at least a few years off, but preferably 10 or more (husband is planning to continue working full time). My employer uses TIAA-CREF for our retirement funds, so most of my money is in there; I also have one Roth IRA with American Funds and another one with Vanguard. Husband's employer uses Vanguard, so most of his money is with them, although he also has an American Funds Roth. We also each have a couple of small IRAs with credit unions (~$15k between the two of us).

I'm wondering if I should roll my funds out of TIAA-CREF and put everything into Vanguard (costs are quite a bit lower there, as you all know). Or is it better to keep things spread out so everything isn't with one company? (That's probably a naive question ... I really don't know much about this stuff.)

Any advice? If I make the switch, would Vanguard be able to take care of it for me? I feel like I should have a plan. Thanks for any info.

[matchewed]

Vanguard will be able to help with everything if you choose to go with them.

Theoretically having your money in different institutions (Vanguard/Fidelity/Charles Schwab) is a form of risk prevention in the event that something terrible would happen to one of those companies. This was previously discussed in another thread and the general consensus is that there is almost no chance of a Vanguard going poof. I'm personally not so convinced especially with more and more reliance on information systems and computing which has particular vulnerabilities but then again I may very well be overly paranoid. :)

Lower costs for your next 40 years of life is a good thing. Whatever you do try to ensure that it is with a focus on that while maximizing your investments returns and longevity.

[OzzieandHarriet]

I'm considering rolling it into one of Vanguard's targeted retirement funds. For my age/date when I'd access the money, they suggest the 2025 fund (VTTVX).

One thing that confuses me is that TIAA-CREF pushes annuities, which I don't entirely understand. My instinct is that this isn't the best way to go, but how do I learn what I need to know?

If I do the rollover, is it better to wait (till the end of the year, e.g.), do it ASAP?

[GreenGuava]

I'd suggesting moving everything to Vanguard.  Any old workplace plans and old IRAs (especially the small ones at the credit unions).  Call Vanguard and have them help you do this - there's too much room for a convenient "misunderstanding" (especially by American Funds) that will lead to a tax nightmare and loss of tax-advantaged space.  Vanguard will transfer the assets in kind, and they'll initiate the transfer - that is, a pull not a push.  Just have the statements from those places in front of you and they (Vanguard) will walk you through it.

Remember, you're doing a rollover, not a withdrawal. - that phrasing is important.

For others following along:  Banking institutions are generally a poor place to invest;  insurance companies are even worse.  These places are great for banking and insurance, respectively, but are terrible for investing.  High-cost brokerages (American Funds, Edward Jones, etc) are also worth avoiding.

If you don't know what to invest in, pick an appropriate target date fund.  You can always re-allocate it from there - or, once it's all in one place, make a post here, letting us know your desired asset allocation (% bonds, % stocks in domestic, etc) and we'll help you set it up.

One thing that confuses me is that TIAA-CREF pushes annuities, which I don't entirely understand. My instinct is that this isn't the best way to go, but how do I learn what I need to know?

Never invest in something you don't understand.  Annuities are nice for guaranteed income if you can't manage this yourself, but they're a lot lower return than even a simple auto-pilot target date fund.  In short, I don't think they're appropriate for you in this circumstance - you're clearly capable of understanding this stuff and doing it yourself.

Check out the Bogleheads' Investing Startup Kit as a great way to learn about it.  I can suggest some traditional paper books, too, if you prefer.

If I do the rollover, is it better to wait (till the end of the year, e.g.), do it ASAP?

Do it ASAP.  Rollovers (traditional to traditional, Roth to Roth) are not a taxable event and have no annual limit.  Just pick a weekday or Saturday morning when you have some time, call Vanguard, and they'll walk you through it.

[fiveoclockshadow]

Even if Vanguard goes bankrupt your funds are safe.  The concern that any brokerage house goes bankrupt affecting your investments isn't a real concern.  They (or their mutual funds) only hold the stocks/bonds for you.  Even if the management company goes under the stocks/bonds are still yours.  For instance, when Lehman Brothers went under no investor that had their stocks/bonds/mutual funds held by Lehman Brothers lost anything.  So don't worry about putting all your investment accounts with Vanguard.

Now then - annuities are a different matter.  They include an insurance component essentially and they can depend on the health of the company issuing the annuity to a degree.  The issue with annuities is that they are very long term investments backed by a single company.  They are expensive and thus it is difficult to diversify them.  Annuities can be a useful part of a retirement portfolio in certain cases.  They can help provide a "floor" of income against both market risk and longevity risk (social security being a similar kind of floor).  Most analysis I've seen of annuities indicates there are only certain ones worth purchasing, usually you want them to be part of your portfolio and not the entire portfolio (i.e. annuitize only part of your holdings) and it rarely makes any sense to purchase one before your mid-seventies.  There are a wide range of awful annuities, keep in mind these are the products always being sold at free steak dinner seminars full of scare tactics for the customers and big commissions for the sellers.  Buyer very much beware.  You've got two decades to learn about annuities before you need to consider purchasing one.

As to the rollover there is one condition in which you may not want to rollover.  That is if you are at an income level that requires using a "backdoor Roth" contribution - that would mean if filing jointly your MAGI is over 178K.  In that case you really don't want traditional IRAs laying about because they will make the backdoor scheme not work.  Thus you wouldn't want to roll a 401k over to a Traditional IRA in that situation.  That's the only reason I can think of to keep your 401k with your old employer - and it doesn't apply to very many people.

[Tyler]

Haven't done this yet, but I personally am planning to split my investments between two brokerages. I have no real fear of either going under, but unexpected things can always happen and I prefer not to have all my eggs in a single corporate basket. For example, if the password for one account is ever stolen by identity thieves, I'll still have full access to the other half of my savings while I sort out the mess. Even assuming I'd eventually be made whole in that situation, it may not happen immediately (I speak from experience, but that's another story). 

[AlmostIndependent]

I like having all my accounts at one place for simplicity's sake. I have everything with vanguard except what is with my current employer. Where you keep your money is largely a personal preference. Do what makes the most sense for you.

[pbkmaine]

Do you want to withdraw the money before age 59.5? If so, leave it where it is. The age for withdrawals without penalty is 55 for employer plans IF you separate from service in or after the year you turn 55. For IRAs, it is 59.5.

[meadow lark]

Say what?  I have never heard that!  If that is true you are making me happy!

Edited to add:
 Shazam!  Just looked it up and you are right.  Fits right in with my 4 yr and 9 month plan,  which happens to be when my wife hits 56.

[AlmostIndependent]

Do you want to withdraw the money before age 59.5? If so, leave it where it is. The age for withdrawals without penalty is 55 for employer plans IF you separate from service in or after the year you turn 55. For IRAs, it is 59.5.

I've never heard that either. Makes my day :)

[Numbers Man]

Nicely played pbkmaine!

[pbkmaine]

Yeah, you should see me at Trivial Pursuit. Particularly the little known Pensions and Investing Edition :)