Season 1, Episode 10: What to do with all those old retirement accounts?

What matters most when you have multiple retirement accounts, how often you're supposed to check the "market" and why good investing is super boring

WOTVFB listener Carin asks: What do I do with all of the retirement accounts I've accumulated from past jobs?

Sara tells us the one thing we have to do with those accounts (spoiler alert: it's not consolidating them!) and what part we don't have to freak out about.

Caitlin gets validation for her investing strategy of never checking on the market, and Sara wonders who the hell will ever listen to our podcast since our advice is so boring. Set it and really forget it??

This week, the one thing Women on the Verge of a Financial Breakthrough can do TODAY to take the first, or next, step towards building a strong financial future is taking a peak at just exactly what's inside of those forgotten retirement accounts.

Ask us your dumb investing and finance questions on our ask us page.

This episode was edited by Jes Rowe. Music by Bad Bad Hats and Devmo.

Transcripts for Episode 10: What to do with all those old retirement accounts?

Music intro by Bad Bad Hats

Caitlin Welcome to Women on the Verge of a Financial Breakthrough. I'm Caitlin Meredith, a mediator and coach based in the Bay Area, and

Sara I'm Sara Glakas, investor, advisor and founder of Black Barn Financial and the Austin Women's Investing Group, which you can find on Meetup.

Caitlin So this is the podcast where we figure out finance one dumb question at a time, because when I met Sara, when I was a student in her Investing for Beginners class several years ago, my financial planning activity was to collect all of the envelopes that arrived to my house that had anything to do with money or finance. Collect them in a neat pile, put a rubber band around them and put them in the back of the filing cabinet.

Sara That's an awesome system. I love it.

Caitlin Thank you, Sara. I agree. But since taking Sara's class and becoming friends with her, I now have the advantage of just getting to ask her all of my dumbest, most basic questions in this podcast you get to hear them to.

Music transition by Bad Bad Hats

Caitlin On this episode, we have a question from a curious listener named Carin.

Sara Yes, I'm ready.

Caitlin Let's do it. This is Carin's question. I have like three different retirement accounts one Roth, one non Roth. Maybe it's a 401k. One through work, it seems overwhelming to try to make sense of them and coordinate a coherent plan. So I just ignore all of the accounts. Am I doing the right thing? Sara what do you say?

Sara That's a really good question. I think this is really common where it's just like out of sight, out of mind, right? What I would suggest is if you know you have these three accounts, I think you need to take a little bit of time and look at what you're investing in inside the accounts without getting too overwhelmed with anything else. You can keep the three accounts as they are, but I think you need to make sure that you are investing in stocks and bonds, mutual funds, something inside the accounts.

Caitlin OK, so wait a second. It's so interesting that you started with that because I thought it was like, how will we consolidate those accounts or whatever? But you're saying, like before you even got the idea of consolidating or whatever, find out what's in them to make sure what's in them is what you want to be in them.

Sara Yes, I think that's the first place to start because Carin said, what were the accounts that she has already?

Caitlin Well, she's not exactly sure which sounds so familiar to me. So she has a Roth, a non Roth, which she thinks might be a 401k. And then one through her current work, which she didn't specify, which I just so identify with like, you know, you have them, you don't exactly know what they are.

Sara So it's a whole different sub topic to talk about what the accounts are. But you know, we talked a lot in the past about compounding time value of money, the idea that your time is valuable before you go through all of this time and effort to figure out what the accounts are that you have. Again, I think the first step is to look at the account and I would see if you're invested in, you're probably in a target date fund. Have we talked about target date funds?

Caitlin We have. And so a target retirement fund that you calculate based on your age or if you have a concrete plan, what the year you would retire would be. So that could be 2040 could be 2045. It could be 2030. That they have target retirement funds that do the mix of stocks and bonds together for you. They come up with the recipe. You just have to select it.

Sara Right. So I say, if you look in these three accounts and you see that you're already invested in a target date fund, which is almost always the default option now, which is a really, really good thing that you probably didn't have to do anything and you automatically got put in the target date fund.

Caitlin For your age,

Sara For your age. I would step one confirm that that is happening because what you're actually trying to avoid is having a bunch of money sitting in these accounts in cash or something very cash like because it's not growing.

Caitlin Define cash like

Sara Something super duper conservative,

Caitlin meaning it won't make you as much money as you could make over time.

Sara Yes, if it's in cash or a money market or a CD or a short term bond fund, or really almost any type of bond fund, it's very conservatively invested. If you're in cash, you're probably getting close to zero percent rate of return.

Caitlin OK, so then you can just think of it as you're like, super safe savings account that you can't touch until you retire, that that money won't make you more money if it's not in the stock accounts, index funds that have stocks in them.

Sara So if you're in a target date fund, assuming that that target date is, so now it's 2021. Right. So if we're in a 2040 fund, you have about 20 years to compound. That fund is going to have a pretty healthy portion of the fund in stocks. Right. And so, you know, like, OK, over 19 or 20 years, a good percentage of my retirement account is invested in something that should double every seven to 10 years. That's what you want. You don't want to look in those accounts and be like, Oh, great, I have $20,000 that's sitting in cash and has been in cash or a money market for the last 10 years because I put the money in and then it didn't get invested. And it's just been sitting there, not growing for 10 years. That's what we want to avoid or fix right off the bat.

Caitlin That's the most important.

Sara Absolutely.

Caitlin OK. Does it bother you that it's spread out over three or four or in my case? Let's just say five retirement accounts, does that bother you?

Sara It doesn't bother me as much as the thought of having money not working as hard as it could possibly work for you in the time you have between now and retirement. So I would say, like if we're doing the simplest thing, it's looking at those three accoun not worrying too much about what they are right at this very second and just making sure that they're invested. If the funds are not invested or they're in a money market fund, move them into the target date fund that you have access to in your retirement account.

Caitlin OK, here's such a dumb question, and I'm thinking that by the time it comes out of my mouth, I might know the answer already, but I have to say it out loud. This is a safe space, right?

Sara My gosh, I'm on the edge of my seat.

Caitlin OK, let's say I have $10,000 in account A, investment account A, $10,000 in investment account B, and $10,000 in investment account C. They're all in the same target retirement. Do I make as much money on the doubling cycle as I would on a single account that had $30,000 on it?

Sara I love that question. People ask me that question all the time.

Caitlin Thank God. I feel like it's super obvious that it would be the same amount.

Sara It's the same. OK, but it's not obvious, right? Like, you're thinking that somehow you'd end up with more if they were all consolidated in one big account, or sometimes people think they would get more if it's spread out among more accounts. The answer is it's the same. Where you might get a little bit of extra return is if you have three small accounts. Maybe by consolidating into one big account, you would qualify for a mutual fund that has a lower expense ratio.

Caitlin Yeah, yeah. And I know when I've bought certain index funds, if I don't have a certain amount of money, I can't buy, like there's a threshold, a minimum amount of money that you need to buy certain shares. And so if I had all the money together and I, does this make any sense at all?

Sara No, it totally makes sense.

Caitlin Will you explain what I'm saying? Because I don't understand it enough only to know that when I've tried to buy a certain index funds, I didn't have enough money to buy the one I originally was trying to buy.

Sara Yes. So at Vanguard, we'll use that as an example. Most of their index funds have a $3000 minimum. Once you get to $3000, you can buy the investor class shares of Vanguard Funds. And then once you get to a higher level 10,000 or 15,000 or 20,000, you qualify for the ADM shares of the same mutual fund.

Caitlin Isn't that a pilot?

Sara I think maybe, maybe yes. So then you reach ADM status and your funds have a lower expense ratio. So if you're paying less in fees,

Caitlin then in proportion to the amount of money that you have there, right?

Sara Then you would keep more of the money and less would go out in fees. So that's where consolidating things can make sense. But I would say that that falls into the category of optimizing your portfolio and making it more efficient. It's not typically where I think people should start. OK. You start by checking to make sure that your retirement funds especially are invested. A healthy portion is invested in stocks if you want this to grow at any rate over a long period of time.

Caitlin OK, so maybe this isn't a question you can answer. That would be shocking to me, but if I had a retirement account with a job and I'm no longer at the job, so there's no new contributions going into that retirement account, can I still switch around what that money's invested in within that retirement account, even if I can't add more money? Can I change or do I have to take it all out? Is it frozen?

Sara That's a really good question. I've never seen a case where you could not change it. OK? It is definitely the case that you can't add more money to it if it's your old 401k, or your old retirement account. If you don't work there anymore, you can't add more money to it, but it's still your money so you can still go in. And almost always, if anyone has come across a situation where they haven't been able to do this, I'd be interested to hear it. But I've never come across that. People have always been able to go into their old account and change how it's invested. Just not add more money to it.

Caitlin OK, so it's a relief to me, the idea of how many boxes I'd. Have to check and fine print, I'd have to read how to close down some of these accounts and turn the money into another account seems overwhelming. But the idea of just figuring out what's inside of the account feels much more doable.

Sara Yeah, and I'm pretty confident that now it doesn't happen as often that people end up in money market funds or really conservative accounts because several years ago, the default changed for almost all of the retirement plans out there, where they made the default that unless you went in and chose something different, the default is almost always a target date fund. So that's what I see most of the time, you know, in Carin's situation that she would bring in these three account statements, and I would look to see, OK, what is she invested in in, I would say, 100 percent Target Retirement Fund. And then I would feel pretty good about that. And if she just wanted to check out for a few more months or a few more years, she would still be OK.

Caitlin OK. This is such a relief because I feel that when most of us get our first job with those options, we have none of the tools or education to know how to choose that. So the idea that there's a default that makes sense just based on your age, that isn't the most aggressive, but that is like investing in the market seems like a good policy decision.

Sara Yeah, I really like it. It's I think it's helped a lot, a lot of people.

Caitlin OK, here's my next question. That sort of related, but sort of not. I feel like here we are doing this podcast about investing and being in the stock market and how important that is for our own financial planning. But along with that, for me, was always the assumption that I'd have to know exactly what was going on in the stock market at any given time, like that I should really listen when at the end of the news, they talk about the Dow Jones Industrial Average and the S&P 500. Two things that I have no idea what they are. And that was part of the intimidation is that it's not just investing, it becomes significant portion of your day to understand what the stock market is doing. And then you talked in an earlier episode about how we're the biggest risk that like when there's a crash, the market isn't the risk, it's our behavior and decisions in the face of that crash that are the problem or the biggest risk. So I'm so curious, how often are we those of us that are investing as like retirement investors? How often are we supposed to check the market?

Sara How often do you check the market?

Caitlin Never. I mean, that's not true. When I hear that it's really low, I'm like, Oh, they say buy, Oh, what is it? Buy low, sell high. I know. And so I get excited when I hear that it's low because I think like, I'll get a deal. But you know, I don't have the tools to act on that.

Sara Yeah, I think that's really good. I think that most people should ignore it and put it in a time capsule and consider their retirement funds like not to be looked at or touched or managed. Other than making sure that your contributions are going into a fund that will grow like a target date fund or a stock fund. But other than that, like you can skip it, you can skip all the drama of the market, and I really believe that.

Caitlin This is shocking. I'm going to say it again. Shocking. Sara. I mean, you have to right? Because it's your job, so you follow the market.

Sara Yeah.

Caitlin But what is the difference between the people that should be checking the market all the time and the people that are like, can you think of a difference? Is it the people whose profession it is to be following the market? Like if you are getting paid to follow the market, then you should follow the market and everyone else should just close their ears.

Sara Yes, it's something like that. If you're responsible for other people's money, you should follow the market because there are some decisions that will benefit your clients if you have a general idea of what's going on, but everyone else should not. I mean, and I say like one of the things that has kind of occurred to me over the years of doing this is whenever a financial headline is in the mainstream news.

Caitlin Yeah.

Sara Right? So like what you're talking about, right?

Caitlin Right, like the only time I'd ever hear about it.

Sara Right? That's what causes people to panic in that headline. I will say, like coronavirus, you know, aside, almost every other headline by the time it makes it into the mainstream news, it's something you should not be acting on. So a really good example recently. So what? What month is this? It's November 2021. Yeah. Last month it was the debt ceiling debate, right in Congress. Yeah, that was a headline, a CNN news headline. But in the financial news, almost all professional investors knew that Congress wasn't going to actually default and run into the debt ceiling. That this is political theater we go through every four years or six years or whenever it comes up, it's always the same thing over and over again. So there weren't that many professional investors who saw that as a risk. The market sold off and people called and said, Oh my gosh, I'm so worried about this. I'm so worried that, you know, in this case, it was, you know, Republicans are going to drive us into this brick wall out of spite. But I would say most professional investors did not think that was going to happen.

Caitlin Sara What does that mean that the market sold off?

Sara Oh, that just means that the market fell. That went down in price. Stock prices went down.

Caitlin OK, so people then could buy low at that moment,

Sara they could if they weren't too scared. And I will say, like the stock market didn't sell off by that much. In this case, it was, I know, between five and 10 percent, depending on what you were looking at. But it was one of those headlines that caused people to reach out and be worried. And so as I was thinking about, it was like, OK, well, this is something that's in the mainstream non financial news and in the financial news they were kind of talking about it, but not as like a major risk to the actual market. The way that the financial community was looking at it was, Oh, this is something that could cause retail investors, which is what you call nonprofessional investors.

Caitlin So I'm a retail investor?

Sara You're a retail investor. Right. So this is a headline that would cause retail investors to sell because they perceive it as a much bigger risk than how it's perceived in the financial community.

Caitlin So what I hear you saying, Sara, is that by the time a dummy slash retail investor like me hears any kind of stock market news, it's too late to do anything about it anyway. So I should just ignore, ignore, ignore. And that's a huge relief because then I don't have to make any decisions. But it also seems crazy. Like on the one hand, we're telling people like, you want to have a million dollars in this system, but then also just shut your ears and whistle and go on about your life. Like, I can't think of another situation where you're telling people to invest like a huge resource and then to totally ignore it. But that's exactly what you're saying.

Sara It is. So this is like with the stock market, especially, the volatility. So the up and down price movement is not a bug, it's a feature,

Caitlin it's not a bug. It's a feature.

Sara You get higher rates of return or you expect to get higher rates of return because of the ups and downs. That's what gives you the higher rates of return. So you can just kind of set it and forget it. If you can't get to a point where you believe that the U.S. economy is going to continue to grow over the long run with lots of ups and downs in different cycles, and that's just how the market works. It will never stop working that way. But if you can get to that point, then it's OK to just walk away and come back in 20 or 30 years.

Caitlin Oh my God. OK, so we need the like Obama anger translator. So like market crashes and what I'm supposed to feel is, isn't this just beautiful? The stock market's so healthy it's doing exactly what we knew it would do, and it's down, and that means it'll go up. And then I hear that it's totally peaked and I'm not allowed to be like, Oh my God, I'm going to make so much money. I'm just supposed to be like. Isn't this such a healthy feature of the stock market? There it goes again, vibrant with life, and that's it.

Sara Oh my gosh, I wish this whole podcast was you narrating the market just like that.

Sara It would be so awesome.

Sara I can't hear you. La la la la la la.

Sara Yes, those are all great things.

Caitlin So we are supposed to only frontload. We're frontloading our opening the account, we're front loading choosing the index funds, we're front loading our level of risk, which we'll talk about in another episode, we're frontloading all of these decisions. But the good news is, the only additional decision is like way down the line. Well, A can we start giving more to it at a certain point and then B like, when are we ready to take some out? But in the meantime, we don't watch the market. We don't have to take that on.

Sara I would just skip it. I would just sidestep that drama and just not worry about it. I mean, it's a lot to ask of people.

Caitlin So I'm curious. We talked in a previous episode about Robinhood and my understanding of it. Full disclosure, never been on it. Only know what's in the mainstream news. So that seems to me people are trying to play the market like they have to know by the second what stock prices are. So that's a completely different experience that we're she's. Smirking, it's not a smirk. You're frowning, you're looking worried, she's looking worried, people.

Sara It's my worried look. It's my furrowed brow look.

Caitlin Explain the furrowed brow Sara.

Sara Yeah, it's, I mean, it's just really different. The shorter the amount of time that you're in the market, the more random the movements are, the more it's like a coin flip. Is the market going to go up tomorrow or down tomorrow? It's basically a coin flip on that short of a time horizon, but because of economic growth and the creative destruction process of the stock market over long periods of time, you can look at a chart and see that it trends upward over long periods of time. But as you zoom in from years to quarters, to months, to days, to minutes, to seconds, those movements are more random. So you're not putting the odds in your favor of making money by buying and selling on such a short time horizon. You're leaving it up to chance. Maybe you're part of some, like one of those Reddit fueled meme stock trading things. It falls on the spectrum of get rich quick vs. investing. So if you want to dabble in something like that, just be really, really careful. The stories are all about people who make a lot of money in a short period of time. But there's a lot of stories about people losing a lot of money in a short period of time and having it be gone forever. So you have to really, really be careful there.

Caitlin I'm just trying to think about how to harness that interest. I know a lot of young people got really into, you know, those meme fueled stocks as you called them or Reddit fueled stocks. And so like, that's exciting that people are engaging with the system, trying to understand it. So how to kind of harness that interest? But what we're asking people to harness is super boring.

Sara I know. Is anyone going to listen to this podcast? This is such a stupid idea.

Caitlin This is like Broccoli and all of the Kale, and that's like, really cool. You know, like the foam, you know, amuse bouche that you get at a fancy restaurant. Like, just super exciting, but actually, it doesn't fill you up. And we're talking about this like really long term, boring stuff. And what I really appreciate about what you said and I feel like it's come up before with us is how few stories we hear about people's lives and about their financial lives. Or I should say, the stories that we do hear are really dramatic. And in those cases, you were hearing people that made, you know, a 26 year old making like $50,000 in a day from GameStop stocks. So we hear that, but we do not hear the stories of the hundreds and hundreds or thousands that lost real money in that same endeavor. And similarly, it doesn't really make a good story, as you've said many times, like, well, I put $500 a month in my retirement account, and when I'm 70, I'm going to be all set. That's just not an interesting story. It's not a sticky story. Whatever, we got, we got to make it a little bit more snazzy to have it stick, so that we are all vulnerable to that. Like, we hear the stories that we hear, especially in mainstream media or wherever you're getting it and we choose which ones to stick in our head like the super success that like, Oh, I wish I had done that one. And the ones in this realm that we should stick with are the most boring story of all. Saving your money, putting it in the account and not looking at the market anymore. Yeah. That's the winner!

Sara Yeah. In 20 years, I'll be ready to retire. I know. Boring, so boring.

Music transition by Bad Bad Hats

Caitlin OK. Sara, are you ready to tell women on the verge of a financial breakthrough? What is one thing they could do today to take the first step, the next step on their financial journey? What are we calling it? A journey? Experience? Plan? Future?

Sara All of this things. Yeah, I think we go back to if you're that person with accounts, maybe that's three accounts. Maybe it's 10 accounts. Maybe it's one account. Get a copy of your most recent statement and there will be a section where it shows you. Sometimes it's called holdings. Sometimes it's called positions, but it'll show you what you're invested in and make sure that that thing is not cash or a money market or something really, really conservative, like a bond fund. I think that you want to be looking for it to be invested in a target date fund or some collection of funds. Some of them have the word stocks or equities in them. Some of the funds might have the word bonds in them, but you want to make sure that your money is being invested in some way. That's the first step. If it's not being invested, either chuck it into a target date fund that's available to you or call someone to get some help just to make sure that that money is not sitting in cash for the next 10 or 20 years, like maybe it has been for the last five or 10 years. You want to get it invested.

Caitlin I love the part where you just said call someone because I was just about to make a plug for like, if you know, the company that's holding your money, but you can't remember where I call them, like, they have amazingly good customer service representatives to walk you through finding like, I know Schwab has it, but I don't know where it is. I those statements don't come to the house. I don't use that email anymore. Whatever. Call them, like, they will have your Social Security like there is a way to prove to them that you are who you are and say, I need to know what's in that account. How do I do that? And then if they tell you and as you say, well, how do I put that into a target retirement? Like, you don't have to pay someone to get that information. The company holding your money in an investment account has people that will walk you through that. Am I naive in saying that?

Caitlin No, that's exactly spot on, right? And they might not be able to give you formal recommendations on what you should be investing in, because that falls in the realm of investing advice, but they can lead you down the right path in a hypothetical way. Like, hypothetically speaking, if you wanted this money to grow and double over the next seven to 10 years, you could invest in a fund like this so they can give you guidance. It probably won't fall in the realm of advice unless you're working with a financial advisor, but they can give you so much information to work with,

Caitlin And they can tell you how to find out what you are invested in. Yes, I like where your money is. Like just the most basic thing, because that was such an intimating, even though I was getting the statements like you just said, Oh, it's going to be called positions or holdings like, we don't use either of those words and our normal lives, and then they have to come up with a couple different ones like. So don't worry about having to know what all the words mean. Just call them. There are normal people that you can talk to and say, I am trying to find out where my money is I know I have a retirement account with you guys, but I have no idea where it is and I want to know what's in it and they'll walk you through that part. Definitely.

Sara Just call people, call.

Caitlin Just reach out. We need a song for that. OK, thank you so much, Sara.

Sara Thanks, Caitlin. This is so fun.

Sara Bye bye.

Music transition by Bad Bad Hats

Sara Hey. Do you have any dumb questions about finance or investing? Send them to us at our web site womenontheverge.com

Sara Hey, so many thank you's to Kelly West, a woman on the verge in her own right who took the amazing photos for our album, art and website, helped with our website design, music, audio editing, cheerleading, mental health, everything. Emily Kleinsoerge, our stylist that did our hair and makeup for our photos from Lucy Skyrocket. Lauren Gross and Taylor Gross, who helped us with our graphic design

Sara and our music is by Bad Bad Hats and Devmo.

Caitlin This episode was edited by Jes Rowe.

Caitlin If your partner is making you ask for money, giving you an allowance, taking your money or not letting you know about or have access to family income. This could be economic abuse.

Sara Learn more at thehotline.org or call 1 800 799 safe.

Caitlin So Sara because you're a financial professional, when you have to read a disclaimer for this podcast,

Sara I would actually really love it if you could read the disclaimer and your.

Caitlin OK. Doing it. This podcast contains general information that is not suitable for everyone. The information contained herein should not be construed as personalized investment advice. Past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this podcast will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.

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