INFORMS Open Forum

BALTIMORE, MD, July 17, 2023 – When researchers set out to study 401(k) retirement savings accumulation, they found that thousands of studies of retirement savings accumulation ignored the surprisingly high rate of departing employees who cash out retirement savings at job separation. This is concerning because, statistically, everyone will likely change jobs multiple times before retirement.

Click here to read the full press release.

------------------------------
Ashley Smith
Public Relations Specialist
INFORMS Public Affairs Coordinator
Baltimore MD
------------------------------

Agree, but let me expand on an option to roll over the 401K to your individual retirement account.   There is no requirement to do anything with the account.   You can leave it in your past employer's 401K.   This can be particularly advantageous for older employees who will eventually reach the age of RMDs (72) IF you have Company stock in the 401K.   When your Company stock is rolled to an IRA that money becomes fully taxable when withdrawn.   However, RMD rules allows you to defer the first year RMD to the following year.   If you have not made any withdrawals from the 401K, you can withdraw the company stock and the market value is used for satisfying the RMD for both years.   However, the Company stock can then be sold and the employee only pays long term capital gains on the Company stock.  Check out the tax rules for NUA's  (Net Unrealized Annuity).

If you do not have any Company stock, then it might be advantageous to roll to an IRA as you probably have more investment opportunities available.  

------------------------------
BRIAN PUTT
Decision Scientist Consultant
retired
Fremont CA
------------------------------

I agree with the article that it is concerning, but I'd add "for most people" or "in general". For others, probably less than 5% of the population, the money might bring a much higher percentage return put to other use like starting a business or getting out of debt to start saving much more - snowball effect. It also does not state how much the average account is worth when withdrawn. Our minds tend to trick us if the amount is smaller, and that's where the education part comes in that is mentioned in the article. Maybe a good case study for the Analytics and/or Decision Analysis community. At what $-value, for what % return, and what age group, are people more likely to cash out 401k's when leaving a company? What other factors are involved? I don't think it's just employers not educating their employees.

------------------------------
Aaron Hussey
Founder & CEO
Integral Analytics, LLC
Concord NC
------------------------------

Really? 41% cashed out their retirement? Well, what was the average withdrawal? And are you sure the researchers are not confusing this with rollovers? If true, this is just another reason to encourage our government to redesign the private retirement system. This is one issue out of many.

Check out this article from Demos; report has more details: https://www.demos.org/research/retirement-savings-drain-hidden-excessive-costs-401ks

------------------------------
Alberto Aparicio
Data Analyst
Charitable Adult Rides & Services, Inc.
CA
------------------------------