Developing a 401k Strategy In The Modern Employment Market

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Copyright (c) 2006-2010 Jason Alba
What is the biggest pain that comes with every job search? I'm not talking about the job search itself, I'm talking about some of the typical "housekeeping" that you have to do. Is it file for unemployment? Is it refigure your budget? Is it developing a new schedule? For me, one of the biggest hassles is figuring out what to do with my 401k account.

What I have done in the past is just roll my 401k money from one job to the next. But that just doesn't make sense to me anymore. This last "job transition" was not voluntary, and I didn't feel comfortable leaving ten years of amassed 401k savings at an employer that I didn't respect. The longer my job search went on the more uncomfortable I felt knowing that my money was not getting the priority that I wanted.

Then it dawned on me. You see, I've become very attuned to "the new career." The idea that you'll change jobs every 2.8 years is different than what I'm used to, and what my parent's generation is used to. No matter how much I'd like to have one employer with a big fat pension waiting for me at retirement age, it ain't going to happen. My techniques for getting and keeping jobs are different than my father's techniques. And my techniques for managing my retirement money should be different also.

I decided to set up a personal master retirement account. This is an account that I have set up with an investment company that mimics what an employer would have set up for me. There is absolutely no value in rolling over a single 401k account from employer to employer every 2.8 years. The only thing I can gain from having an employer-based 401k account is their matching program (which seems to have been getting weaker over the years - but all the same, it is free money). This benefit is worth the effort to start a new 401k with each employer but there is no benefit for you to keep rolling everything over to each employer.

I interviewed Brandon Small, owner of of InvestedInterests.com, to see what he thought of this idea (you see, I don't have a CPA and didn't even do that well in my accounting classes in college. And no, of course I don't balance my checkbook!) and here is what he had to say:

"By holding your account outside the employer, you:

1. Can substantially lower your fees.

2. Have more investment options.

3. Have more flexibility on taking money out for emergencies, etc.

The fee issue is becoming very important. As the market matures, it has become common for investment companies to reconfigure these 401k accounts to take more from the employees, rather than charge reasonable rates to the employers. The fees to the employees are hidden and never reported in $ amounts. It has gotten to the point that the old adage of "always max out your 401k" is becoming "put as little in as required to get your matching $."

I didn't know any of this, did you? The last thing I want to do with my retirement money is pay unnecessary fees. That could be cutting into my gas budget on my RV trips!

Another concern that I've had is ensuring that I get the quality advice that I want. Because I was not one of the top paid employees at my previous company I felt that I did not get the attention that I needed on my account. Having a master retirement account with one investor will allow you to develop a long-term relationship with your investment advisor. As the investment advisor gets to know you and your interests better, and value the long-term relationship, he or she should be more inclined to treat you the way you should be treated, as opposed to treating you as a short-term addition to their portfolio.

So I set up a personal 401k account with an investment advisor, which is my master account. Of course this advisor uses an industry leader to handle the financial transactions, and he never really sees the money (this is how it worked with my last 401k, which used Lincoln Financial to handle all the money transactions and reporting). And I rolled over my 401k account that I had developing.

In my next job I will set up a 401k savings account through my employer, with the anticipation that I will get vested matching contributions. When I leave employment I immediately begin paperwork to roll that account over to my Master Retirement Account. This completely severs the relationship with that employer and I have complete access to and control over my money.

As I mentioned before, long gone are the days when things were easy and you could trust your company to watch out for your best interest. It is time to take your financial future into your own hands and control the direction you are headed, instead of relying on your current employer to dictate your future. Find a great investment advisor (Like Brandon at InvestedInterests.com) and talk about setting up a Master Retirement Fund. It will be one career move that you won't regret.  ( jobs employment )