What to do with Multiple Retirement Accounts, Ep #97

Do you have multiple retirement accounts lying around and don’t know what to do with them? On this episode of Retirement Starts Today we answer 2 listener questions. One is about having multiple retirement accounts with multiple custodians, the other is about how to withdraw from a portfolio in retirement without adding additional risk. Then we’ll talk about a retirement headline regarding changes in the Medicare supplements C and F. Listen in to another exciting episode of Retirement Starts Today so you can help yourself prepare for life in retirement.

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Outline of This Episode

[1:42] What do you do when you have multiple retirement accounts and multiple custodians?
[7:25] Does withdrawing from the bond side of your portfolio increase the risk of your portfolio?
[12:09] Medicare supplements C and F will no longer be available to newly 65-year-olds starting next year

What do you do when you have multiple retirement accounts and multiple custodians?

Pat and his wife in Minnesota have multiple retirement accounts split between IRA’s 401K’s. They currently have no bonds. He would like to know how they should tidy them all up and allocate for bonds.

You aren’t gaining any diversification by having so many old accounts, simply more confusion especially as RMD begins to play a role. You should be able to consolidate all of your retirement investments into a small number of accounts. Generally, your choices break down as follows: traditional IRA, Roth IRA, and also a non-retirement brokerage account. Old 401Ks, traditional IRAs, rollover IRAs, 403Bs, etc. can all be combined into one account per person. This means for a retired couple: we’ll often see 5 accounts for the household which include:

Spouse A – traditional IRA
Spouse A – Roth IRA
Spouse B – traditional IRA
Spouse B – Roth IRA
Joint account – a non-retirement brokerage account

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Does withdrawing from the bond side of your portfolio increase the risk of your portfolio?

This is a fantastic question. Every time we take a distribution from bonds or cash, we are tilting our portfolio a bit more heavily toward stocks. Here is an extreme example: if we have a 40% allocation to bonds and cash and we are withdrawing 4% per year, after 10 years, we would have a 100% allocation of stocks remaining. During this withdrawal period, we were systematically dialing up the risk and volatility of our portfolio as we reduced our bonds and cash and thus increased our stock positions.

How do we remedy this increase in risk?

The way to decrease risk is to periodically rebalance. Even a DIY investor can handle it with a simple spreadsheet. List each percentage allocation next to each fund name. Next, create an acceptable level of drift next to each fund which could be somewhere between 2% and 10% depending on your own risk tolerance. For example, you have a 10% allocation to your favorite small-cap index fund and that fund has a fantastic quarter. Your position that was formerly 10% is now 15%, and your maximum acceptable drift was 2%. Simply trim that position back to your desired 10% and redistribute your profit to another area of your portfolio. Basically, if you don’t rebalance enough you expose yourself to more risk, but if you rebalance too frequently you won’t allow for any growth.

One day I’ll create a free rebalancing spreadsheet for my listeners to use and put it up on my website. If you already have your own rebalancing spreadsheet that you use I would love to have a look at it. Please email me at Benjamin@RST.com.

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Medicare supplements C and F will no longer be available to newly 65-year-olds starting next year

Medicare doesn’t cover all of your healthcare needs. Instead, it functions like a typical 80/20 healthcare plan. Many people choose to supplement Medicare with a gap plan. Plans C and F are considered the ‘Cadillac Plans’ since they cover all remaining costs. Plan G is a good alternative to plans C and F.

What does this mean for people that already have plans C and F? We all know health insurance gets more expensive every year and Medicare supplement plans are no different. Now that C and F won’t have the younger and healthier population joining they may become even more expensive at a faster rate than ever before.