In his most recent article in MarketWatch, RCH’s Spencer Williams cites the recent market trauma experienced in the wake of the United Kingdom’s decision to exit the European Union (“Brexit”) as a good reason for retirement-savers to consolidate their accounts.
Defined contribution plans, argues Williams, offer participants an array of tools that help them avoid emotional decisions, including investment advice, “set it and forget it” target-date funds and managed accounts. If participants have rolled their account balances into their new-employer plan when they’ve changed jobs, then their savings will be in a single account, which is easily monitored and protected ahead of, and during Brexit-like volatility.
In addition to avoiding panic during a crisis, consolidated accounts can also minimize the likelihood that participants will succumb to temptation and cash out their savings. The Auto Portability Simulation demonstrates this point in dramatic fashion, showing that auto portability can add more than $100 billion in new retirement savings, due to a nearly two-thirds reduction in cash outs of small-balance (under $5000) accounts.