You have to make a lot of decisions when you retire, and among the biggest is what to do with your workplace retirement savings. No matter how much money you have or how you intend to invest it, you have to first choose where your nest egg will live.
You have four basic choices.
Remain in your employer’s plan and just let the money grow until you have to start taking the required minimum distributions (RMDs).
Remain in your employer’s plan while taking installment payments.
Roll over the assets to an IRA at an institution of your choosing.
Take the account balance in cash and pay tax on the distribution to either spend it or roll it into a Roth IRA.
The good news, according to recent research from Vanguard, is that most people faced with this decision over 10 years, from 2011 to 2021, were able to preserve their retirement dollars. Seven out of 10 kept their assets in a tax-deferred environment, and 90% of the money stayed invested, and presumably, grew a bit. Average balances ranged from $239,300 to $418,900.
“More and more investors are on the right road to having a good experience with accumulations. We’re seeing improvements,” says Matt Brancato, chief client officer for Vanguard Institutional.
But, Brancato adds, “the average doesn’t tell you about individual experience.”
And for that, you have to look at some of the less good news, which is that Vanguard found that 30% cashed out their savings at age 60 or later, most with smaller balances. The average amount of these accounts was $39,700. Some had likely simply saved less, and some had been with the company plan for a short time, so had not accumulated a large amount.
The peril of cashing out
Cashing out a small balance might seem inconsequential to you at the time. The account could be one of many that you have, and the tax burden might not seem too much for you to bear. Or you could be intending to pay the income tax due on the distribution and roll the money into a Roth IRA in a conversion. Or the cash might be enticing – and then it’s gone.
“First of all, ‘small’ is a relative term,” says Brancato. “The dollar amount has to be proportionate to the intent. It’s a highly individualized decision.”
One important step if you’re thinking of cashing out is to consider how the amount involved could possibly grow over time and add to your retirement income later on. If your balance is $39,700 now and you think that isn’t much, it could be $78,000 in 10 years, if it grows at 7%.
At Ascensus, another large retirement plan administrator, they display those numbers to people when they initiate a decision that would impact their retirement savings, like reducing their 401(k) contribution. “We serve up a very quick estimate to connect the dots between what seems like a small amount to a much larger amount of money you’d forgo in retirement as a result,” says David Musto, CEO of Ascensus. After seeing that information, “30% of people ultimately choose not to reduce 401(k),” he adds.
That same kind of information may also help people make a decision between staying in their workplace plan after retiring or moving the money to a rollover IRA. While most eventually move money over to their own account within five years, Vanguard’s study shows that the numbers are shifting up for those staying in their workplace plan even after they retire.
Brancato sees the driver of that being flexible plan design, advice and financial-wellness tools that may be part of an employer package. If you want to tap into your money before you have to take RMDs, for instance, your plan would have to allow it, and Vanguard notes that the number of plans offering this nearly doubled in the past five years.
Got a question about the mechanics of investing, how it fits into your overall financial plan and what strategies can help you make the most out of your money? You can write me at beth.pinsker@marketwatch.com.
Netflix sign in page displayed on a laptop sscreen and Netflix logo displayed on a phone screen are seen in this illustration photo taken in Krakow, Poland on January 2, 2023.
Jakub Porzycki | Nurphoto | Getty Images
As Netflix inches closer to rolling out password-sharing guidelines in the United States, college students who use accounts connected to family or friends are bracing for changes to their streaming habits.
The company has said to expect new password guidelines in the coming months, although it hasn’t provided specifics about what they would look like. Netflix in February outlined password-sharing protocols for users in Canada, New Zealand, Portugal and Spain that call for users to set a “primary location” for their Netflix accounts — and that add additional monthly fees for out-of-household “sub accounts.”
While Netflix hasn’t said whether the U.S. plan will ultimately resemble these earlier changes, some worry that a crackdown on password sharing could shake up streaming for college students who’ve just left home, as well as burden lower-income students and their families.
Sam Figiel, a sophomore at Mercer University in Georgia, said access to Netflix is required for many of his peers’ classes. Figiel, who uses his mother’s account, said nearly everyone he knows at school watches Netflix, although he and some friends might move away from the platform if password sharing ends.
“Without Netflix, I would have to find a way to compensate for classes, but the only other way I could compensate would be going to another streaming platform,” Figiel said. “My parents are paying for three kids in college. They have all their own expenses. They pay for all of our car payments, all of our phone bills, so they don’t really have a lot of extra money to spend.”
Netflix has long touted how it puts subscribers first. Yet the gradual password-sharing changes have created uncertainty for college students who might not have, or want to spend, disposable income for their own subscriptions.
Netflix spokesperson Kumiko Hidaka directed CNBC to the company’s earlier announcements for information on its previous steps, but declined to comment further. Chengyi Long, the company’s director of product innovation, said in February that more than 100 million households were sharing accounts, amounting to about 43% of the company’s 231 million paid global memberships, as of this month.
Maybe it’s not that expensive, but at the end of the day, saving money is saving money.
Vrisha Sookraj
University of Maryland junior
According to a 2022 survey by Parks Associates, 40% of U.S. households share or use shared passwords, a rise from 27% in 2019. People in the 18-to-34 age group, which accounts for 30% of all Netflix users, are more likely to exchange passwords than older viewers. Netflix reported 74.3 million paid streaming subscribers across the U.S. and Canada in its fourth quarter.
Vrisha Sookraj, a junior at the University of Maryland who watches Netflix from her parents’ account, said it’s the go-to streaming platform for nearly everyone she knows. But she’s worried the prospective policies could push some younger consumers away.
Sookraj suggested that a student plan, similar to cheaper subscription plans offered by Spotify, Hulu and Amazon Prime, could allow for more flexibility while accommodating different income levels. Still, she’s on the fence about whether she would pay the monthly fee herself.
“Maybe it’s not that expensive, but at the end of the day, saving money is saving money,” Sookraj said.
Netflix executives have acknowledged that while the change should help the company’s financial results, it might not be so popular with users. Co-CEO Ted Sarandos said at a December conference that the paid-sharing model “feels a lot like the way you’d manage a price increase,” adding that it will be “really revenue positive” and “market expanding.”
But, he added: “Make no mistake, I don’t think consumers are going to love it right out of the gate.”
Password sharing crackdown so far
Netflix last month said users in Canada, New Zealand, Portugal and Spain can create up to two “sub accounts” for users not living in the primary location for a monthly fee per extra user: CA$7.99 in Canada, NZ$7.99 in New Zealand, 3.99 euros in Portugal and 5.99 euros in Spain.
The company hasn’t shared what a U.S. pricing model would look like — if it follows that example.
In countries listed above, users can also ask non-household members to establish their own individual accounts by transferring their profiles to a new account, which will maintain personalized recommendations and viewing history from the original account.
The guidelines came after a trial period in Chile, Peru and Costa Rica that began in May.
The company has worked to support “customer choice and frankly a long history of customer centricity,” Netflix executive Greg Peters, who became co-CEO in January, said during an earnings call last October.
An image from Netflix’s “Stranger Things.”
Source: Netflix
Still, he said, the company needs to balance those goals with the need to “get paid.”
Some Wall Street analysts believe there could be a hiccup immediately after a U.S. password crackdown, resulting in higher churn in the second quarter, followed by possible revenue growth.
Wells Fargo analysts think password sharing could be a bigger near-term catalyst for revenue than the introduction of the ad-supported tier.
In a January note, Macquarie analyst Tim Nollen speculated that average revenue per user can rise if enough free users get pushed off the platform and then rejoin as paid subs or are added as sub accounts. He told CNBC this week that he expects many users who drop the service to come back pretty quickly given the scale of Netflix’s content base, although he anticipates some initial churn for the next quarter.
“There are a lot, lot, lot of U.S. users that are not paying for it, and so I think they’re very sensitive to the backlash that they’re going to get when they institute this,” Nollen said. “It’ll take some time to get to the point they really know what they’re doing and they really can start to make money out of it.”
If Netflix charges extra for sub accounts in the U.S., these added costs may prove challenging for Thuan Tran, a senior at Duke University from Vietnam who shares his own account with his sister and partner. While he acknowledged many Duke students have the financial means to support added costs, he said significant changes to the subscription structure would make him think twice.
“When your whole shtick is that you can share an account with people that you love in different places … and then now you reverse that and then go and charge people more if they want more profiles or screens, then that’s kind of going against a lot of the things that made your site attractive to a lot of viewers,” Tran said.
Staying or leaving
Even if the cost of a subscription could rise for borrowers, some college students think Netflix is too important to give up.
Elizabeth Danaher, a sophomore at the University of Missouri-Columbia studying communications and film, said Netflix has enabled her to watch films with her family in Illinois while away at school, especially with her father, who edited “A League of Their Own” and “Home Alone 2.” She said it would “definitely hurt” if the cost structure prohibits her from accessing Netflix — which she considers a vital “source of information” — though she says she and many of her peers would likely shell out a few dollars a month.
“I think at the end of the day, Netflix is probably a necessity to me,” Danaher said.
According to a study from Leichtman Research Group that has yet to be released, roughly 66% of households nationwide have Netflix. About 14% of all households that have Netflix borrow it from someone else and do not pay, according to the online survey of 3,500 adults across the U.S. That jumps to 21% for consumers aged 18 to 34.
“What sharing did was help them grow the company, but now what it’s doing, it’s limiting their potential growth of subscribers,” President and Principal Analyst Bruce Leichtman said, adding that Netflix lost nearly a million subscribers last year in the U.S. and Canada.
Leichtman estimates sub accounts could cost an extra $3 each, and says, according to survey data, about half of both sharers and borrowers say they would pay a fee at that rate. About 10% in both categories said they would pay the extra charge but would also look to downgrade their account.
Of those survey respondents who share their login credentials, about a quarter say they would drop Netflix after a policy change that would cost them additional monthly fees per sub account, compared with a third of borrowers. Though Leichtman said it’s unlikely to play out to that degree as people settle into paying a few extra dollars per month under new policies.
Aravind Kalathil, a senior at the University of Missouri-Columbia, said he uses a stranger’s Netflix account that’s been logged in on his apartment’s smart TV. Kalathil and his roommates don’t know who owns and pays for the account, and are prepared to have their access cut off without warning should password restrictions go into effect.
“In the end for us, it probably will not have the biggest effect because our families all have Netflix accounts and we will make it work, but it just adds extra hassle and annoyance to something that in the end is kind of expendable with the amount of streaming services out there,” Kalathil said.
