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 firstname.lastname@example.org.
BuzzFeed CEO Jonah Peretti stands in front of the Nasdaq market site in Times Square as the company goes public through a merger with a special-purpose acquisition company on December 06, 2021 in New York City.
Spencer Platt | Getty Images
When a marriage or an engagementfails, it’s common for the participants to take time to work on themselves.
That’s where the digital media industry finds itself today.
After years of focusing on consolidating to better compete with Google and Facebook for digital advertising dollars, many of the most well-knowndigital media companies have abandoned consolidation efforts to concentrate on differentiation.
“What you’re finding is companies are trying to find a non-substitutable core,” said Jonathan Miller, the CEO of Integrated Media, which specializes in digital media investments. “The era of trying to put these companies together is over, and I don’t think it’s coming back.”
A 90% decline in BuzzFeed shares since the company went public in 2021, a failed sales process from Vice, the collapse of special purpose acquisition companies, and a choppy advertising market have made digital media executives rethink their companies’ futures. For the moment, executives have decided that more concentrated investment is better than attempts to gain scale.
“Right now, everyone’s trying to get through a tougher market by focusing on their strengths,” BuzzFeed CEO Jonah Peretti said in an interview with CNBC. “We’re in this period now where we should just focus on innovating for the future and building more efficient, stronger, better companies.”
What’s happening in the digital media space echoes trends from the biggest media companies, including Netflix, Disney and Warner Bros. Discovery. After losing nearly half their market values, or more, in 2022, those companies have emphasized what makes them different, whether it be distribution, brand or quality of programming, after years of global expansion and mega-mergers. Disney CEO Bob Iger said the word “brand” more than 25 times at a Morgan Stanley media conference this month.
“I think brands matter,” Iger said. “The more choice people have, the more important brands become because of what they convey to consumers.”
Making strategic decisions based on consumer demand rather than investor pressure is a pivot for the industry, said Bryan Goldberg, CEO of Bustle Digital Group, which has acquired and developed a number of brands and sites aimed at women, including Nylon, Scary Mommy, Romper and Elite Daily.
“Too many of the mergers were driven by investor needs as opposed to consumer needs,” Goldberg said in an interview.
“If BuzzFeed and five of the other biggest companies were combined into a bigger digital media company, you would probably be able to get paid more money,” Peretti told The New York Times in November 2018, kicking off a multiyear effort to consolidate.
The rationale was twofold. First, digital media companies needed more scale to compete with Facebook and Google for digital advertising dollars. Adding sites and brands under one corporate umbrella would boost overall eyeballs for advertisers. Cost-cutting from M&A synergies was an added benefit for investors.
Second, longtime shareholders wanted to exit their investments. Large legacy media companies such as Disney and Comcast‘s NBCUniversal invested hundreds of millions in digital media in the early and mid-2010s. Disney invested more than $400 million in Vice. NBCUniversal put a similar amount into BuzzFeed. By the end of the decade, after seeing the value of those investments fall, legacy media companies made it clear to digital media executives that they weren’t interested in being acquirers.
Vice Media offices display the Vice logo in Venice, California.
Mario Tama | Getty Images
With no strategic buyer available, merging with each other using publicly traded stock could give VC and PE shareholders a chance to cash out of investments that were well past the standard hold time of seven years. Digital media companies eyed special purpose acquisition companies — also known as SPACs or blank-check companies — as a way to go public quickly. The popularity of SPACs picked up steam in 2020 and peaked in 2021.
Deal flow accelerated. Vox acquired New York Magazine in September 2019. About a week later, Vice announced it had acquired Refinery29, a digital media company focused on younger women. BuzzFeed bought news aggregator and blog HuffPost in 2020 and then acquired digital publisher Complex Networks in 2021 as part of a SPAC transaction to go public. Vox and Group Nine agreed to a merger later that year.
BuzzFeed, generally thought by industry executives at the time to have the strongest balance sheet with the best growth narrative, successfully went public via SPAC in December 2021. Shares immediately tanked, falling 24% in their first week of trading. The coming weeks and months were even worse. BuzzFeed opened at $10 per share. The stock currently trades at about $1 — a 90% loss of value.
BuzzFeed’s underwhelming performance coincided with the implosion of the SPAC market in early 2022 as interest rates rose. Other companies that planned to follow BuzzFeed shut down their efforts to go public completely. Vice tried and failed. Now it’s trying for the second time in two years to find a buyer. BDG and Vox, meanwhile, abandoned considerations to go public. Vox instead sold a 20% stake in itself in February to Penske Media, which owns Rolling Stone and Variety.
The industry turns inward
Consolidation was always a flawed strategy because digital media could never become big enough to compete with Facebook and Google, said Integrated Media’s Miller.
“You have to have sufficient amount of scale to matter, but that’s not a winning formula by itself,” Miller said.
Vice’s deal for Refinery29 is a prime example of a deal motivated by scale that lacked consumer rationale, said BDG’s Goldberg.
“The digital media rollup has proven successful only when assets are thoughtfully combined with an eye toward consumers,” Goldberg said. “In what world did Vice and Refinery29 make sense in combination?”
Vice is a cautionary tale of what happens to a digital media company when its brand loses luster, Miller said. Valued at $5.7 billion in 2017, Vice is now considering selling itself for around $500 million, according to people familiar with the matter, who asked not to be named because the sale discussions are private.
A Vice spokesperson declined to comment.
“In the old days of media, with TV networks, if you were down, you could revive yourself with a hit,” said Miller. “In the internet age, everything is so easily substitutable. If Vice goes down, the audience just moves on to something else.”
Companies such as BuzzFeed, Vox and BDG are now trying to find an enduring relevancy amid a myriad of information and entertainment options. BuzzFeed has chosen to lean in to artificial intelligence, touting new AI-generated quizzes and other content that fuses the work of staff writers with AI databases.
BDG has chosen to primarily target female audiences across lifestyle categories.
Vox has focused on journalism and information across a number of different verticals. That’s a strategy that hasn’t really changed even as the market has turned against digital media, allowing Vox CEO Jim Bankoff the opportunity to continue to hunt for deals. Just don’t expect the partners to be Vice, BDG or BuzzFeed.
“We want to be the leading modern media company with the strongest portfolio of brands that serve their audiences on modern platforms — websites, podcasts, streaming services — while building franchises through multiple revenue streams,” Bankoff said. “There’s no doubt M&A is part of our playbook, and we expect it will continue to be in the future.”
Finding an exit
While executives may be making strategy decisions with a sharper eye toward the consumer, the problem of finding an exit for investors remains. Differentiation may open up the pool of potential buyers beyond the media industry. BuzzFeed’s emphasis on artificial intelligence could attract interest from technology platforms, for instance.
It’s also possible that there will be an eventual second wave of peer-to-peer mergers. While Integrated Media’s Miller doesn’t expect a future industry rollup, BuzzFeed’s Peretti hasn’t closed the door on the concept if market conditions improve. As executives invest in fewer ideas and verticals, the end result could be healthier companies that are more attractive merger partners, he said.
“If everyone invests in what they’re best at, if you put them back together, you’d have that diversified digital media company with real scale,” Peretti said. “That helps drive commerce for all parts of a unified company. I think it’s still possible.”
Disclosure: Comcast’s NBCUniversal is the parent company of CNBC.
WATCH: Axios’ Sara Fischer on BuzzFeed’s continuing struggles
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