Wanted: Your $2 Trillion

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By Dayana Yochim (TMF School)
July 23, 2002

Do you have money sitting in a former employer's retirement plan? What are you waiting for? Get it outta there!

Financial services companies are waiting with open arms. They're jockeying for prime position to capitalize on the next big wave of assets -- the 401(k) rollover market.

"Mountains of money are moving in the next decade," according to a new Financial Research Corporation study on the rollover market. Mountains, indeed: Consumers will take out more than $3.7 trillion from qualified retirement plans by 2006, according to the study, titled "Money on the Move: Strategies for Capturing Retirement Rollovers." More than half of that -- $2 trillion -- will be funneled into IRAs, completing the process the financial industry has dubbed a "rollover."

This massive migration of money is a fairly recent -- and welcome -- phenomenon, at least for suffering financial services companies. According to the Department of Labor, individuals move to new employers once every four years. With the average 401(k) balance at $50,000, companies such as Fidelity, Vanguard, and Merrill Lynch stand to gain a healthy influx of retirement assets. By capturing just 0.75% of the projected rollover dollars, a company could add about $13 billion of new assets to its business over five years.

The new business is even more important to financial institutions, as gun-shy investors slow down their savings rate. New net flows into retirement plans (about $42 billion last year) are expected to remain flat for at least the next four years, according to FRC.

To get in on the action, retirement market behemoths are gunning for your retirement dollars, if you haven't already noticed by the recent prime-time run of rollover commercials. Now's the perfect time to take control of your retirement savings, if you have money sitting in a former employer's account.

  • Discount brokers are making it easier than ever to roll your money into a self-directed IRA. It can take as little as one form to complete the transaction.

  • To keep assets, companies are beefing up customer service. Demand a free toaster. (Just kidding.) At least consider the level of customer service (such as phone support, online account management, and so forth) when you move your money.

  • On the other hand, don't be tempted to trade more than you would -- or buy risky investments -- just because of some perk you're offered.

  • Watch out for fees. Some brokers charge an IRA maintenance fee. Again, it pays to shop around.

  • And despite the market's recent ugliness, don't stop investing in your current employer's retirement plan -- especially if there's some sort of matching program.

Got questions? Wanna talk about it? Visit our Retirement Investing discussion board to converse with others.

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