Retirement is a major life transition, one where decisions about financial security take center stage.

After years of working and saving, many retirees are faced with the question of what to do with their 401(k) funds. Should they withdraw everything, transfer to a new plan, leave it with their employer, or roll it into an IRA?

Take Mrs. Winberry, for example. At 70, she faces this exact decision. Her choice will directly impact her financial future, and it’s essential she evaluates each option carefully, so her money can last.

Let's go through all of the options.

Take a distribution of 100% of the funds

One option for Mrs. Winberry is to take all the money out of her 401(k) in one lump sum. While this gives her immediate access to her entire savings, it comes with major downsides. The biggest issue is taxes—taking out the full amount at once could push her into a higher tax bracket, meaning she would owe significantly more in taxes that year. And by withdrawing everything at once, Mrs. Winberry would lose the opportunity for her money to continue growing. This could shorten the lifespan of her retirement savings, making it harder for her funds to last throughout retirement. For these reasons, Women Financial Power usually advises against taking a full distribution unless there is an urgent need for a large sum of cash. It’s better to consider other options longevity and growth potential.

Roll over to a new employer’s plan

If someone continues working after retirement, they might be able to move their 401(k) to a new employer’s retirement plan. However, since Winberry is fully retiring and doesn’t have a new employer, this option doesn’t apply to her. For those still working, rolling into a new employer's plan is an options that allows them to keep saving in a familiar setting without any major disruptions.

Leave the investments with her current employer

Leaving Mrs. Winberry’s 401(k) with her current employer may seem convenient, but it exposes her to several risks. One of the biggest is market risk—if the market declines, the value of her retirement savings could drop. There's also sequence of returns risk, where poor market performance early in retirement can significantly reduce her savings. Lastly, there's longevity risk—the risk that she could outlive her savings due to them not growing any more or if her investments lose money over time. Leaving the funds at her employer’s plan makes it harder to protect against these risks, reducing the long-term security of her retirement funds.

Roll over the funds to an individual retirement account

Most advisors agree that rolling over a 401(k) provides the best balance of growth potential and flexibility for retirees like Mrs. Winberry. This option allows her to continue growing her savings while maintaining greater control over them. Many retirees choose to roll their 401(k) into annuities because annuities offer a guaranteed income stream for life which helps protect against the risk of outliving their saving. Annuities also allow for growth without the risks associated with market volatility, offering both security and opportunity for financial stability.

Help your retirement funds last longer by rolling them over into an annuity. Not rolling over these funds into secure growth producing options, can lead to significant risks. Studies show that many retirees who leave their 401(k) with their employer are exposed to limited investment choices, market volatility, and higher fees. In fact, research found that over $1.35 trillion is left behind in old 401(k)s, with many retirees losing track of these accounts.  By understanding their options, retirees can make more informed decisions and better secure their financial future.

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