Retirement accounts vs. IRA Rollover
I am a retired Chicago public school teacher. I have a vanguard target 2020 retirement 403b. Now that I am turning 65 in February I have to decide to keep this account which Empower Retirement has designated as avg risk with high return. Should I change it to a low risk target 2015 account or do a IRA or Roth IRA instead?
Terry Says
This is a tough question, but it’s not an “all or none” question. You have two choices — leave the account in the plan or roll it over to an IRA.
Typically, I advise people to do the rollover because you’ll get a wider choice of investments. Retirement plans typically cater to the younger people with longer time horizons, who can afford more aggressive investments.
You’re in a low cost plan, because Vanguard is managing it. So that’s a big plus. But even in a target date plan, you will have plenty of exposure to stocks because they figure that over a 30 year retirement you’ll need stocks to offset the impact of even a small amount of inflation. But many retirees don’t want to have that much stock exposure because they might be forced to sell at a bad time to take required distributions, which start at age 72. And they get queasy during a stock market decline, when their account value falls.
I would see if there is a money market or GIC (guaranteed income contract) offering inside your 403(b) plan. If so put about 20 percent of your money there, and then move to a lower risk target plan. But if not, you might consider rolling the whole thing to Vanguard (let them do it for you) and putting 20% in a money market account, 30% in their equity-income fund, and the remainder in a target date fund. It will take some work and thinking on your part, but you’re a teacher! You can learn to do this!
