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.
In 1974, at 32 years old, with my biological clock ticking in my head and a mother-in-law saying, “Go home and practice!,” I questioned whether I wanted to birth or raise children. I started thinking, Maybe there is something wrong with me? Why would a woman loving her school kids [I was a teacher] not want to have her own children? Wasn’t this my biological destiny?
I tried to find any information about these feelings I was having, even going to a therapist who told me it was OK to live a child-free lifestyle. The word “free” was foreign. Wasn’t it (child)”less?”
It didn’t help when my friends and family would say, “Marcia! It’s the greatest experience you’ll be missing.” Or, they would admonish me with warnings of regret. I would be doomed to become an aging sad, lonely woman without anyone caring for me. Maybe I’d have a few cats for comfort. (I’m allergic to cats.)
Thankfully, I found one book that changed my life: “The Baby Trap” by Ellen Peck. I devoured it in two days, handing it to my then-husband who agreed he was perfectly fine without children. We didn’t have to be trapped into what society thought was normal. This led me to be an advocate of the child-free, not childless, lifestyle.
‘Pronatalism’ was added to my lexicon
A new word entered my brain: pronatalism. Peck’s definition went something like this: Pronatalism encourages or exalts the status of having children, making those who don’t have children fear the consequences.
Marcia Drut-Davis is the author of two books on being child-free.
Atmosphere Press
I began to see examples of this in the media, advertising, books, movies, songs and TV ads promoting having children as a rewarding lifestyle, implying the secure knowledge they’d be caring for their beloved parents forever. Often the product being sold had nothing to do with parents or a family depicted with their children. Yet, those ads sold two things: the product and having a family of loving children.
The warnings of regret, aging alone, uncared for reverberated in my mind. I heard, “Sure. Be selfish. Have fun. Be carefree. Travel. Buy things. But things and memories of having fun can’t help you when you’re old and lonely. Children and grandchildren will.”
I finally can say, at 80, without a doubt, after living this child-free lifestyle, I’m not alone. I’m not lonely. I have no regrets. My life is filled with younger and older friendships, passions, goals, a good financial adviser, and no fears of being lonely or not cared for.
See: Once you hit this age, you’re far more likely to feel lonely
Yet, many child-free or childless still have aging fears. Many parents do, too. How does pronatalism affect this fear of aging with and without children? I asked a child-free expert, Laura Carroll, the author of the book, “The Baby Matrix,” about pronatalism.
“Going back many generations, pronatalism has affected us all, whether we have children or not. We’re all taught we’re supposed to want children, and when people don’t, we think something is wrong with us, and we’ll bemissing out on experiencing ‘true’ fulfillment in life, neither of which are true,” Carroll said.
She continued, “For those who want children, pronatalism also pushes the belief that having biological children is the true womanhood be-all-end-all, so when we have trouble conceiving or miscarry, pronatalism misleads us into feeling we need to hide this and feel shame.”
Carroll added, “Pronatalism also promises that we will naturally know how to parent, that we will love the process of parenting, and that our adult children will be there for us when we are old. When any of these things don’t happen, parents feel they have to hide their true feelings, which can often include disappointment and regret.”
Related: Am I lonesome? ‘I’m fine. I’m fine.’ How single men can prepare to age alone.
Facing aging on our own
Can you who are parents say, “I don’t have that disconnect with my children”? I know a few parents who told me, “They call, visit, are here for me if I need them.” I smile thinking of them. It’s fortunate having that heart connection lasting a lifetime.
However, many parents find their children now live too far away due to careers or love connections. Some, sadly, have predeceased their parents. Others have children of their own with money challenges or health problems and can’t help their parents. Too many are estranged from the parents or their parents are estranged from them.
I asked a favorite life coach of mine, Anna Olson, who hosts the “We’re Not Kidding” podcast for her opinion.
“We start by taking ownership of our lives and our choices. Introspection and understanding ourselves more deeply are paramount. A foundational exercise I do with all of my clients is defining their values, which are central to finding meaning and purpose in life,” Olson said. “I also encourage people to befriend their fears. What do they fear most about aging without children? How can they be proactive in mitigating those fears?”
She continued, “On the flip side, I encourage them to explore the aspects of parenthood that they find appealing. How might they build these elements into their life in other ways as they age? Aging without children is an invitation to think more broadly and intentionally about how we build our lives. For anyone who may fear loneliness in old age, this can include fostering intergenerational relationships.”
Since she knows me personally, Anna called me “a masterful example of this,” which was dear of her. Why is this true? Because I saw the writing on the wall. Once I knew I was never birthing or raising children of my own, I wanted to feel more secure in my aging.
I found a fabulous financial adviser who helped. (I wish I had done that earlier!) I also have a good health plan from my career as a teacher. But, even more important, I’ve nurtured the love, compassion and respect of many younger and older people. I call them my “daughter-sister-son-neighbor friends.”
I met some I was honored to teach. One is now a mom of a son. He calls me “Marma” (Marcia/Grandma). I met others in organizations I joined. There is another more mature woman I taught at a university; it was amazing to find out we lived within a few miles of each other. Now, I call her my sister/friend. I’ve watched her raise two fabulous girls loving the experience, only to be heartbroken when one of her daughters decided not to have her in her life after my sister/friend divorced her husband.
Next week, I’m taking an older woman in my community out for her birthday. Sadly, her kids don’t live nearby. She’s suffering from early dementia. We’ll celebrate together. It’s a gift to myself as well. Seeing her enjoying life and spending time out of her home is very rewarding.
Also see: Aging alone? You might need to learn to let go of some old traditions.
How to stay connected
If you’re feeling alone or lonely, you must decide if this is the way you want to remain. First, you must erase the perceptions of what you were supposed to have. Remember, this may not be easy. How many years have you relied on societal promises that aren’t being attained? Then, you can take stock of what makes you happy.
A study at Brigham Young University concluded that a lack of good friends and connections can be as damaging to your health as smoking 15 cigarettes a day. According to BYU psychology professor Julianne Holt-Lunstad, “over the past few decades now, growing evidence shows people who are more socially connected live longer and people who are more isolated or lonely are at increased risk for early mortality. She’s found that in her own research, too, including in a 2022 study published in the Annual Review of Public Health.
Social interactions are critical as we age. How can you make those happen? Many people enjoy volunteering. If it’s nurturing you want, too many organizations need you! There are children, environmental activist organizations, animals, political organizations that all are needing help.
Maybe it’s that educational course you always wanted to take. Go to the nearest university and see if there are courses for older adults. Often, they’re complimentary. You’ll find new friendships there as well. Is it the theater or concerts you enjoy? Go! Even if you can only afford one show, go. No friends to go with? Go alone. I often start talking to people sitting next to me who may be looking for friendship.
If you’re homebound due to illnesses, it’s a bit more challenging. However, there are many online opportunities. Vitality Society offers diverse Zoom classes in Tai Chi, meditation, plant-based cooking, brain-based games, art courses and online travel experiences.
Aging is a daunting experience. I have boo-boos I never had before. My skin is thinner making healing longer. Doctors say aches and pains “are a part of aging.” Sleeping can be difficult since I’m waking up a few times a night to get to the bathroom. Dare I even mention vaginal thinning and dryness?
But I will not find myself saying, “I’m alone. I’m lonely.” I know I can change that with a thought, a plan and determination to live out this life in joy. You can, too.
Marcia Drut-Davis is a passionate octogenarian social activist for supporting lifestyles not on the road most traveled. Her choice is the child-free (not -less) lifestyle. She’s been interviewed on “60 Minutes,” authored two books and is featured in two documentaries on this viable choice. She loves sharing why her life is full, filled with joy and with no regrets.
