15 Aug Is it a mistake to take Social Security and leave my 401(k)?

Q. What are the advantages and disadvantages to retiring, taking Social Security and leaving my 401(k) intact?
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A. There are several issues here.

Let’s start with your decision on when to take Social Security.

You didn’t say how old you are, but the sooner you start taking benefits, the smaller your monthly benefit will be.

So for many people, taking Social Security early is a mistake.

One of the most important things to retirees is consistent, stable and predictable cash flow, said Jerry Lynch, a certified financial planner with JFL Total Wealth Management in Boonton.

“If I have a product that would guarantee you an 8 percent annual increase up to age 70, was indexed for inflation and guaranteed for life, would you move all your money into that? That is Social Security,” he said.

Lynch said Social Security is one of the most underestimated benefits out there, noting the more guaranteed income you have in retirement, the less stress you will have when the market is volatile like now.

For that reason, it could be smarter to tap your 401(k) and let your Social Security benefits grow, but you should sit down with a financial planner who can assess your assets and cash flow and see exactly where your personal situation stands.

When you mentioned your 401(k), you should take a look at decide if you should keep it with your employer or move it to an IRA after you retire.

There are advantages and disadvantages to this, Lynch said.

First, your employer probably has a screening process to make sure the funds are performing well and the fees are reasonable. He said if a fund is underperforming, it is automatically swapped out with a better performing fund so you don’t have to do anything, Lynch said.

As part of a 401(k), you could also get lower fee structures because your employer – and all its employees – have a larger pool of money to entice the investment company to give what are essentially volume discounts.

On the disadvantages, the biggest is that your investment options will be limited in the 401(k), Lynch said.

If you roll your funds into an IRA, you can invest in just about anything.

But if you need more advice and help selecting investments, again, you should consider working with a financial advisor.

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This story was originally published on Aug. 15, 2019.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.