According to T. Rowe Price, retirees are in defined contribution (DC) plans long after retirement. DC plans are typically tax-advantaged accounts, such as 401(k)s and 403(b)s, offered by employers. Advisors should understand why employees continue to invest in these accounts years after retirement — and they should monitor the financial solutions retirees seek from their DC accounts. during the disbursement period.
One Financial Advisor can help you create a financial plan for your retirement needs and goals.
What is a Defined Contribution Plan?
Defined contribution plan Normally tax-advantaged investment accounts provided by employers to help workers save for retirement. Common services include 401(k)s and 403(b)s.
DC plan is different from defined benefit plan (DB), or pension plan, which is managed by a professional and guarantees income in retirement. Defined contribution plans may require employees to opt-in and include employer “fitness”.
Typically, investors will be penalized if they withdraw money from a retirement plan before age 59.5.
Trends in Defined Contribution Retirement Accounts
According to T. Rowe Price’s “Research consulting contribution to determine 2021,” investors tend to maintain their DC plans long after their retirement date.
The top three factors driving this trend include:
-
Lower costs than an individual rollover retirement account (IRA)
-
Flexibility when withdrawing assets
-
Investment generates income
Investors are also attracted by timely access to education, advisors available through retirement plans, and investments that generate unsecured income while maintaining flexibility about finance.
“The emergence of DC-derived retirement income combined with existing infrastructure for asset accumulation represents a more comprehensive set of solutions targeted at delivering better outcomes for participants”.
Advisors and plan administrators may need to focus on retirement income planning potential these plans hold.
“In this way, QDIAs (to save for retirement) and retirement income solutions (to live in retirement) can be conceptually linked,” the study said. . QDIA stands for qualified default investment optionsuch as lifecycle funds, can automatically enroll participants.
T. Rowe surveyed 32 consulting and consulting firms that provide services to more than 33,000 plan-financed clients. They report nearly $7.2 trillion in assets advised.
What do investors do with their 401(k) retirement funds?
In retirement, investors often weigh the benefits of leaving a retirement account with their current plan or rolling it over to an IRA. Depending on their age and account type, they can also determine whether they will start delivering immediately or let the account grow.
Factors that influence making these decisions may include account fees, investment options, and the need to consolidate different retirement plans.
bottom line
Savers and advisors can combine DC plans with the retirement plan’s asset accumulation (or growth) phase. But as retirees stick with those plans during their golden years, advisors can shift their focus to how these plans approach the drawdown phase.
Financial experts should know what drives investors to continue investing in their defined contribution plans – and how that impacts their business model and profitability.
Tips for saving for retirement
-
It’s never too late to save for retirement, or work with a financial advisor to maximize your retirement assets. Finding a qualified financial advisor is not difficult. SmartAsset’s free tool connects you with up to three financial advisors serving in your area, and you can interview the right advisors for you for free to decide which one is right for you. If you are ready to find an advisor who can help you achieve your financial goals, start right now.
-
If you’re still years or decades away from retirement, it’s still important to know where you stand on the path to retirement. Free SmartAsset 401(k) calculator can help you determine how much you can expect your savings to grow over time and how much you can have when it comes to retirement.
Don’t miss news that can affect your finances. Get news and tips to make smarter financial decisions with SmartAsset’s semi-weekly email. It’s 100% free and you can unsubscribe at any time. Sign up today.
For important SmartAsset-related disclosures, please click here.
Image source: ©iStock.com/Fly View Productions, ©iStock.com/PeopleImages, ©iStock.com/svetikd
Item Here’s why retirees stick to workplace retirement plans appeared first on Blog SmartAsset.
