DISCLAIMER: GoldInvestors.news is not a registered investment, legal or tax advisor or broker/dealer. All investment/financial opinions expressed by GoldInvestors.news are from the personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.

Workers spend decades hearing the same message: Save consistently in an employer’s 401(k) plan. Employers may reinforce that habit through automatic enrollment and annual increases in paycheck contributions, but retirement demands a difficult shift from saving money to drawing income.

New Vanguard research suggests many retirees are struggling with that transition. Roughly 4 in 10 hold portfolios that are either very aggressive or very conservative for their stage of life, potentially exposing them to unnecessary risk or inadequate growth.

A quarter of retirees had more than 80% of their balances invested in equities. Another 16% held less than 30% in equities, a range Vanguard described as “potentially misaligned for most retirees.”

The imbalance was more pronounced among wealthier participants. Retirees with balances of at least $1 million were three times more likely than those with smaller balances to maintain aggressive allocations, defined as keeping more than 80% of their money in equities.

Tyson Sprick, a financial planner in Overland Park, Kansas, said the figures show that many retirement plan participants are in a suboptimal position. He said a plan for turning savings into income is critical and should begin taking shape years before retirement.

That conversion process can be a major stumbling block. Holding too much money in stocks can be damaging if markets fall early in retirement, while holding too little can make keeping pace with inflation more difficult over a retirement lasting 25 or 30 years.

Jeff Clark, head of defined contribution research at Vanguard, said some retirees began saving before target date funds were available or used as default investments. That left many workers directing their own allocations throughout their careers.

“They've been self-directing their investment allocations throughout their career and may need to revisit whether their current allocation accurately reflects and supports their goals, income needs, and risk tolerance,” Clark said.

Target date funds invest savings according to a selected retirement year, such as the year an investor turns 67. As that date approaches, the fund gradually shifts money from stocks toward fixed income and less volatile holdings, including cash and bonds.

Many retirees also leave their accounts largely untouched after leaving work. Roughly 8 in 10 had taken no distributions, while only 7% received regular installment payments from their retirement accounts.

Waiting is not necessarily a mistake when retirees have income from sources outside their 401(k). Tax deferred accounts can continue compounding until required minimum distributions begin, potentially preserving more retirement assets inside the plan.

Required minimum distributions begin in the year a retiree reaches age 73, although the first distribution can be delayed until April 1 of the following year. Someone who reached 73 in 2026 could take the first distribution by April 1, 2027, but would also owe the second by Dec. 31, 2027.

Sprick said those lower income years may create tax planning opportunities. “But those lower-income years can also be a great time to consider Roth conversions or other tax planning,” he said. “The Vanguard numbers indicate a sizable swath of people who are not taking full advantage of that.”

About half of retirees initially keep their savings in their workplace plan, although many eventually transfer the money into another account, such as an IRA. Leaving money with a former employer prevents further contributions and restricts investment choices to the plan’s available menu.

Workplace plans can still offer an important cost advantage because they typically receive institutional pricing on investments. Those fees may be lower than retail fees charged for the same mutual funds inside an IRA, allowing the workplace account to grow more than a higher cost IRA holding identical investments.

An IRA rollover offers broader investment choices and greater control over sales, allocation, and rebalancing. However, when a plan administrator liquidates 401(k) holdings and transfers cash into an IRA, that cash is not automatically reinvested, leaving the next decision to the retiree.

Recent retirees are more than 40% more likely to remain in workplace plans when options such as partial and installment withdrawals are available, Clark said. About 7 in 10 plans administered by Vanguard allow installment withdrawals, but fewer than half permit spontaneous small withdrawals.

Sprick advised retirees to choose whichever account structure is easiest to manage, whether that is a former employer’s 401(k) or an IRA. “Keep enough cash or short-term bonds so you're not forced to sell stocks in a downturn if you need the income to live on now,” he said. “Finally, revisit your allocation periodically.”

DISCLAIMER: GoldInvestors.news is not a registered investment, legal or tax advisor or broker/dealer. All investment/financial opinions expressed by GoldInvestors.news are from the personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.