Forget inflation or stock market volatility; a bigger risk to your retirement — one that you might not be aware of — is stuck money.
Stuck money could be forgotten 401(k)s languishing at old jobs, outdated asset allocations, accounts that you can’t access because you don’t know the login or passwords or investments you held on to for far too long.
However you break it down, stuck money can unknowingly leave opportunity and returns on the table.
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The good news: Stuck money doesn’t have to stay that way. There are several strategies you can employ to get your money working again. Here’s how.
1. You forgot about that 401(k)
The average baby boomer has held approximately 12 jobs (PDF) in their lifetime, and while many of these jobs occurred during their early years, switching jobs throughout a career is common.
That’s particularly true with the younger generations. If you've made career changes, you may be among the millions of people who have left a 401(k) behind.
As of May 2023, Capitalize, a platform that helps people locate and roll over their 401(k)s, estimates there were about 29.2 million forgotten 401(k) accounts, holding approximately $1.65 trillion in assets. That’s a lot of money that could be potentially working better elsewhere.
How to get unstuck
If you have a 401(k) sitting with an old employer and don’t know what to do with it, you have options: You can leave it there, roll it over into an IRA or consolidate it with your existing 401(k) plan.
What you don’t want to do is ignore it or take the path of least resistance.
“One of my biggest recommendations before you consolidate it is to review the fees and options between the different accounts,” says Sam Beauvais, certified financial planner at Betterment. “Even though consolidation is a lot more convenient, it might not always make sense from a fee and investment standpoint.”
Unsure if you even have a forgotten 401(k)? Check out our story to see if you're one of the millions of people who lost a 401(k) account.
2. You have financial accounts everywhere
During our working lives, we tend to accumulate financial accounts — savings accounts, investment accounts, checking accounts — and before we know it, we have money all over the place, says Jennifer Baick, vice president of the financial group at Mercer Advisors.
Baick calls this "financial fragmentation" and says it’s made worse if you don’t remember the logins and passwords to some or all of those accounts. That can create a situation in which you have stuck money that seems impossible to untangle.
How to get unstuck
To prevent financial fragmentation, Baick has her clients collect their financial statements and map out where their money is housed so they know exactly where every dollar is, who holds it and who the beneficiaries are.
She also has them log in to the accounts periodically so they won’t get locked out and has them store the logins and passwords somewhere safe and accessible.
“I do encourage a lot of consolidation to minimize the fragmentation if it makes sense to do so,” says Baick.
3. You’ve kept your contribution levels and allocation the same forever
If you're nearing retirement and have been saving in a 401(k) for decades, you might be guilty of neglect. You might have chosen to contribute 10% of your salary and selected an 80% equity, 20% bond allocation when you started your job 20 years ago, and left it at that.
But as you get closer to retirement and/or make more money, your contributions and your asset allocation should have changed.
If your income increases, so should the amount going toward your retirement. The closer to retirement you are, the less risky your asset allocation should be.
Being stuck in a decades-old asset allocation and contribution rate could leave money on the table or worse, cost you some cash if things go south right when you're about to retire.
How to get unstuck
”If you haven't looked at the asset allocation, the first step is to look at it and use the tools and questionnaires that most 401(k) providers have,” says Rob Williams, managing director of financial planning, retirement income and wealth management for the Schwab Center for Financial Research.
Those questions will help you determine the correct risk tolerance based on your time horizon. Undoubtedly, it will be a lot different when you are five years from retirement than when you are 20 years away.
4. You can’t let go of a stock that has served you well
For many people, some of their compensation is tied to their company’s stock. For others, they invested in a particular company, and it has done well for them over the years. In either scenario, parting ways with that holding or even scaling back the amount of the holding can be difficult to do.
Holding on indefinitely to a stock regardless of fundamentals and your overall plan could result in heavy exposure, which could put the portfolio at risk if the stock goes south. If the investor never cashes out and reinvests the money, they might lose out on an opportunity to earn a better return somewhere else.
“Let’s say you invested in Nvidia 10 years ago and you're afraid to sell it because of the taxes,” says Baick. “You're stuck with a pile of money that can be widely volatile and have a big impact on your overall financial picture.”
How to get unstuck
If you're worried about the tax implications of a stock, Baick says you can work with a financial adviser to map out a diversification plan that will mitigate the tax hit.
If it's a company stock and you feel emotionally tied to it, Beauvais at Betterment says to ask yourself: If you had the same amount of funds to invest, would you buy your company’s stock or would you buy a different stock? Thinking it through from that perspective can help you break the emotional bond.
Don’t be overwhelmed into inaction
Having stuck money isn’t a bad thing unless you let it overwhelm you into inaction.
It might be annoying and time-consuming to chase down a forgotten 401(k) or change your login or password to get back into an account, but doing nothing means you're leaving opportunity — and potentially money — on the table.
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