The Benefits of Consolidating Accounts Prior to Retirement

Todd AllenPosted by Todd Allen on March 5, 2019

As one works to build and establish a career, it’s not uncommon to end up banking with a number of different institutions. Perhaps it’s an attractive offer that comes down the pike, or maybe a piece of sage advice from a financially sound friend or colleague—new accounts can establish themselves in plenty of different ways over time. When you’re nearing retirement age, however, it can be highly beneficial to take a closer look at where your investments are being held. In many cases, consolidation may be the most effective route toward successful planning. 

Scattered investments? Here are just a few benefits associated with consolidating your accounts prior to retirement. 

1. Holistic Overview of Investments

Many people who have investments in numerous locations find that managing and keeping tabs on them can essentially be a full-time job in and of itself. Comfortable retirement is all about taking control of your portfolio and ensuring your investments are able to work effectively in conjunction with one another. Consolidating accounts gives you the opportunity to keep asset allocation in order while also making it easier to re-balance in the future. In other words, it adds clarity to the performance of your investments, all within a single, integrated view. 

How should you consolidate? One common way is to move an old 401(k) to your current employer’s plan (or into an IRA if you’ve entered into retirement). Be sure to keep a close eye on potential benefits of keeping an account open before consolidating, however, as fees, expenses, taxes and other considerations can certainly play key roles in the decision-making process. 

2. More Opportunities for Tax Breaks

When it comes to managing a portfolio, focusing on tax strategy is extremely important. Spreading your investments around may lead to larger amounts of your money being subject to taxation than keeping them all in one place. A better strategy is to choose a single financial institution and implement an asset allocation strategy that places tax-efficient investments in their own account while putting less-efficient assets into an IRA. You can do the same across providers, but it will be much more difficult—if not altogether impossible—to look at all of your holdings at once.

3. Potential for Reduced Fees/Commissions

One thing to understand about working with multiple providers when managing investments is that you may end up paying excess fees for doing so, perhaps without even noticing. Since financial providers tend to have price break thresholds, they typically offer more opportunities for reducing (or even eliminating) account fees and investing expenses to those who devote large amounts of assets to their institution. Fees can quickly add up over time, and taking steps to reduce these unnecessary expenses will get you a great deal of mileage when it comes to enjoying a comfortable retirement. 

If you’re not sure where to start, working with a trusted financial advisor is the best way to determine how to best consolidate your accounts prior to entering retirement. Start now—you’ll thank yourself later.