Boomers Are Draining Their 401(k)s and Piling Into IRAs
Retiring baby boomers are pulling money from tax-deferred plans and reshaping the entire retirement industry, The Wall Street Journal reports. Financial advisors may have a major role to play, as most of these plans are moving into IRAs.
Withdrawals from tax-deferred 401(k) plans amounted to $11.4 billion in 2013, according to the Journal’s analysis of data provided by the government and BrightScope, and now outpace new contributions. This is only likely to accelerate, as the number of Americans retiring is expected to grow to 3.5 million in 2015, compared to 2.7 million in 2010, according to JPMorgan Chase and Census Bureau data cited by the newspaper. According to Cerulli Associates projections reported by the Journal, outflows will continue at least until 2019, when investors will withdraw around $51.6 billion.
These withdrawals will have profound repercussions for the retirement business. Hundreds of investment firms and financial planners have been supported by the boom in baby boomer savings, with 401(k) plans growing from $1.7 trillion in 2000 to $4.6 trillion in 2014, according to Investment Company Institute data the Journal cites.
Most of the 401(k) plans are being converted to IRAs, one industry provider tells the Journal, and financial advisors stand to gain from the transition. One commenter, who says she moved her 401(k) to an IRA in 2013, says the process made her look at retirement savings more strategically. “I am learning to do more than just max out my contributions, and my financial advisor is an invaluable resource,” she writes.