Empower, one of the leading providers of financial services, has officially announced its intention to join an auto-portability network that was founded in the fall of 2022. It joins other industry leaders Fidelity and Vanguard in joining the consortium in an effort to help drive auto-portability, which the group believes could drive an extra $1.5 trillion additional retirement savings. The main goal is to eliminate the desire of under-served workers to cash out their retirement plans when they switch jobs by automatically transferring the balance over to a new account.
If you need help with a retirement plan after switching jobs, a financial advisor can walk you through different options.
The consortium is called the Portability Services Network, LLC (PSN) and aims to help workers who have lower balances in their retirement plans. These workers can have their workplace retirement savings automatically moved into the retirement plans of the consortium to help improve their potential savings and returns.
The auto-portability network automates the movement of assets from these retirement plans when workers switch jobs, not leaving funds in a variety of plans. This also cuts down on plan cash-out fees, taxes and penalties. The consortium currently represents more than 43.8 million workers across more than 48,000 employer-sponsored retirement plans.
With the move to join the consortium, Empower will now utilize the available technology to offer auto-portability to its plan sponsor clients. This just expands the under-served and under-saved reach of the consortium and gives workers more power to be mobile with their jobs without worrying about losing potential retirement funds. Outside of the fairly new consortium, there is no simple plan-to-plan savings portability, especially across providers.
Currently, workers who change jobs with less than $5,000 in their retirement savings account cash out that fund at a higher rate than other workers. This is the exact target group of the consortium, and, if successful, the group plans to drive more retirement savings that are estimated to surpass $1.5 trillion.
What to Do With Your Old Retirement Account
When switching jobs, workers typically have several options. One choice that can be avoided to help bolster retirement savings is that you can cash out your savings. This typically costs fees and penalties to do, which lowers the payout and can start workers over with $0 saved for retirement.
Other options that workers have include keeping their 401(k) where it is, rolling it over into another account with a new employer or transferring that money to an individual retirement account (IRA). All three of these options are better than cashing out if your goal is to maximize your retirement savings.
Keeping the retirement account where it is might not always be the best option as it has been reported that thousands of dollars could be lost with lost or forgotten retirement accounts. The plan is also administered by the group chosen by a former employer, and you won’t receive the same help to manage it as you would have when you were an employee.
Rolling your money into a new IRA account can provide more flexibility in your investment choices while transferring it to your new employer can help you keep your total funds with the same administrator.
Regardless of what you choose for your funds, it’s important to make sure you keep growing the total amount you have saved for retirement while maintaining access to your accounts. The consortium can help under-served workers do just that.
How Much to Save for Your Retirement
One of the biggest reasons many people don’t have enough money when they reach retirement age is that they don’t know how much to save. This can impact when they start saving or how much they are saving each month over a long period of time. It’s important to understand what you need for your personal retirement goals as you’re saving so that you can plan accordingly.
Every time a worker starts his account over he can feel further away from his retirement goals. Having a set plan and saving towards that plan every month can be a key to growing your retirement funds to meet your goals. Rolling those funds over when you switch jobs can be another key to keeping that plan on track.
If you’re not sure how much money you need then should consider calculating it yourself or finding a professional who can help you determine what you need to save.
Bottom Line
Empower has joined other giants like Fidelity and Vanguard in making the auto-portability goal a reality. It’s a great tool to help under-saved workers keep their money in retirement and avoid either forgetting about past accounts or paying unnecessary fees and taxes by cashing their accounts out when they switch jobs. Instead, workers can boost retirement savings by automatically transferring their account to another 401(k) account or opening an IRA.
Tips for Retirement Planning
- When thinking through your retirement plan, it’s very important to make sure you have all the tools necessary to save. You also need to make sure you know how much to save and how you’re going to get there. A financial advisor can help you answer any questions you have and create a full retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- One important aspect of determining how much you need to save for retirement is determining how much you’re likely going to receive from Social Security. You can use SmartAsse’ts free calculator to estimate that amount.
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