Thursday, November 19, 2009

Hang on, it's the only nest egg you've got

You've got three choices about what to do with your retirement plan money when you leave a job. And even though the recession supposedly is over, more of us may be making those choices, according to forecaster Nouriel Roubini, who has been distressingly accurate before.

Basically you can cash in part or all of the plan; leave it with your employer until you retire, even if you no longer work there, or roll it into an IRA of your own where you can tend your investments personally.

Financial advisers generally agree the first choice is the worst choice for most of us, because of the huge tax bite and potential penalties that may be triggered when you cash out too soon. They are more divided about the other two choices.

Hewitt Associate's Pam Hess is among a minority of financial advisers who find good things about leaving the money where it is. It's simple and your plan's investment managers probably know more than you (you hope) about investing as profitably as possible.

More advisers favor rolling the money into an IRA, as CNN's Walter Updegrave reports. It's easier to track and you've got more investment choices. Having more choices is important, because traditional 401(k)s often aren't cutting it anymore, say executives such as Putnam Investments chief executive Robert Reynolds.

Insurers such as Prudential have been imagining some of the changes savers need and are coming up with suggestions that would have been startling just a few years ago. Recently insurance giant Metlife and Fidelity, the nation's largest mutual fund company announced a plan to include annuities in mutual fund retirement plans.

Annuities sound complicated to many people. And we've all heard, or in my case, written horror stories about high costs and other jams investors have gotten into. But in many cases, annuities are getting second looks because lifetime incomes sound reassuring right now.

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