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 email@example.com.
Oddity — the direct-to-consumer beauty and wellness platform known for its ubiquitous Il Makiage social media ads — is making money and growing in an environment that’s increasingly risky for purely digital retailers.
The Tel Aviv-founded company looks like it could even be preparing for an initial public offering, despite rising uncertainty in markets and the economy, experts told CNBC.
Oddity, which is home to the Il Makiage makeup line, the Spoiled Child skin and hair care brand, and a third brand that’s in the works, declined to say whether it’s planning to go public but did reveal some of its financial metrics with CNBC.
Since its U.S. launch in 2018, Oddity has achieved profitability, the company said, making $380 million in gross sales in 2022. On average, its gross sales have doubled each year since 2018, the company added.
In Spoiled Child’s first year on the market, the new brand brought in $48 million in gross sales. Oddity declined to share its return rate; its gross sales total does not include returns.
Despite the high cost of customer acquisition for most DTC retailers, Oddity says it is making money the first time a customer buys a product, not just in repeat sales, and it boasts more than 40 million users.
The business, which is as much of a tech company as it is a beauty and wellness company, is seeking to disrupt a market long dominated by legacy retailers by replacing the in-store experience with product recommendations driven by artificial intelligence and data.
“How is it possible that this beauty customer is spending all of her time online, on Insta, on YouTube, getting education, inspiration, but then ultimately transacting in stores?” said Lindsay Drucker Mann, Oddity’s global chief financial officer. “It’s not that she wants to go to the store, it’s that she needs help. She needs help choosing, she needs recommendations.”
And that’s where Oddity comes in.
How Oddity does it
Launched in 2018 by brother and sister duo Oran Holtzman and Shiran Holtzman-Erel, the heart of Oddity’s business model is its proprietary technology — including tech developed by a former Israeli defense official — and the billions of data points it has collected from its millions of users.
A digitally native, purely DTC company, the retailer underscores that 40% of its workers are technologists and no one on staff come from the beauty and wellness industry.
Instead of creating products that customers would need to try in a store, Oddity uses data and AI to make tailored product recommendations for clients. What’s more, it plans to use these same tools to build numerous new brands in the future.
Oddity’s first brand, Il Makiage, works to select the “perfect” foundation match for any skin type with its “powermatch quiz,” which is an AI-powered product recommendation algorithm, the company says. The quiz takes customers through a series of questions about their skin type and tone and then scans a picture of their face to figure out the right shade.
The company insists the algorithm works — and says it gets the shade right more than 90% of the time.
“If it did not work, we would have tons of returns, no repeats, and the economic model would fall upside down,” said Drucker Mann.
Oddity builds out new products and brands by using its tech to figure out what customers are looking for. Then it goes to its suppliers, which also serve the legacy beauty community.
“We go to our suppliers with like, super specific product briefs on ‘we want you to create x’… based on all the data that we’ve looked at,” Drucker Mann explained. “We’re actually going a layer deeper into specific product attributes that will matter to the customer.”
The company said it doesn’t share its data with its suppliers.
In 2021, the company acquired Voyage81, a deep tech AI-based computational imaging startup founded in 2019 by Niv Price, the former head of research and development for one of the Israeli Defense Forces’ elite technological units, Dr. Boaz Arad, Dr. Rafi Gidron and Omer Shwartz.
The tech is capable of mapping and analyzing skin and hair features, detecting facial blood flows, and creating melanin and hemoglobin maps using a regular smartphone camera.
Oddity is in the process of integrating the tech into its Il Makiage powermatch quiz to improve accuracy. They claim one day it “could replace a dermatologist’s eyes.”
Reading the tea leaves
Over the last year and a half, Oddity has made a series of moves that indicate it could be preparing for an IPO.
In 2021, it tapped Drucker Mann, a former Goldman Sachs executive, to be its global chief financial officer. She spent more than 16 years with the Wall Street giant, most recently as its head of consumer and consumer-technology equity capital markets in the U.S.
In the role, she took many businesses public and helped others that were trying to go public. She also led public and private equity financing for consumer and technology companies, including IPOs, follow-on offerings and private placements.
Later, in January 2022, Oddity brought in $130 million from investors such as Franklin Templeton and Fidelity Management, at a $1.5 billion valuation. Prior to that, the only outside investor Oddity brought in was private equity powerhouse L Catterton, which helped fund the company’s U.S. launch.
Later that year, it announced the offering of a so-called security token, which would convert into a share of stock in an eventual IPO at a 20% discount to the opening price.
“The CFO hire that was, I think, definitely a positive sign for an IPO, it’s something we look for in IPO candidates,” said Matthew Kennedy, a senior IPO market strategist for Renaissance Capital. “If the growth was good in 2022, then I’d say they’re firing on all cylinders and seems like they could be well poised to go public.”
He pointed to Oddity’s token offering as further evidence the company could soon have a public stock ticker.
“An IPO has clearly been on their mind,” he said. “Companies that are not considering an IPO don’t issue a press release saying that tokens will convert at the time of an IPO.”
Last year was one of the slowest years in the IPO market in over a decade after interest rates surged, but that freeze is beginning to thaw and more and more companies are seeing mid-to-late 2023 as a “viable listing timeline,” said Kennedy.
In his work at Renaissance Capital, Kennedy tracks every initial filing for the firm’s clients. Usually he looks for companies that have over $100 million in sales and the ability to be profitable within a few years of going public.
“Oddity is not one we had been tracking,” he said. “But I think we’ll keep an eye on it now.”
‘We do see fads come and go’
In some ways, Oddity’s brands are reminiscent of the buzzy hair care line Olaplex, a technology-driven beauty company that had rapid growth at the time of its IPO only to see its stock plummet after it failed to reverse plunging sales.
If Oddity decides to go public, it will need to show investors it can sustain its rapid growth over time and not fade away as a fad.
“I think the biggest risk is that they are growing off of this initial hype and consumer preferences can change rapidly and we do see fads come and go,” said Kennedy.
Nikki Baird, a longtime retail analyst and current vice president of strategy at retail technology company Aptos, said DTC brands need to strike the right product mix in order to stay relevant, sustain growth and attract investors.
“The DTC challenge and where lots of brands struggle is, you have this founder that has this one great idea for this product or they found some nut on some unique tree in Brazil that they’re bringing to market through their skin care product,” said Baird. “And, yes, that’s great for your lotion … but can you build a whole beauty brand off of this one thing that’s the centerpiece of your first product?”
Oddity says it’s ready for the challenge – and thinking even bigger.
“I believe what emerges from this moment will be the platforms of the future, right? I think right now we’re cementing those winners,” Drucker Mann said. “And, in my view, for Oddity, we are really creating the next generation, one of the most important consumer companies truly of our lifetime.”
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