10 Mar Before you move those retirement funds, know this

Q. Can I take my retirement savings out of Vanguard and put it in my bank now that I’m retired?
— Golden years lover

A. Congratulations on your retirement.

Don’t make any quick moves that you may regret.

Jeanne Kane, a certified financial planner with JFL Total Wealth Management in Boonton, echoed that by sharing one of her mother’s sayings: “Just because you can doesn’t mean you should.”

Kane said that yes, if you’re over 59 1/2, you can take your money out of Vanguard penalty-free and put it into the bank.

But she doesn’t recommend it.

For starters, any withdrawal from your pre-tax retirement account is considered ordinary income, she said.

“This means that it is 100% taxable and you’ll pay ordinary income tax on it. You’ll get a big tax bill if you take it all out as a result,” she said.

This means you are guaranteed to lose money if you put your retirement account into your checking or savings accounts, she said.

You should also think about inflation.

The consumer price index (CPI) measures the cost of a group of everyday consumer goods. It was 7.5% higher than a year ago from January 2021 through January 2022, she said.

“Say your savings account offers 0.5% interest. You’ll lose 7% per year due to inflation alone,” she said. “To not lose money, you’ll need a return on your investment of at least the inflation rate or your money is falling behind.”

You should also remember the so-called rule of 72, a financial equation that tells you how long it will take for your money to double given the current rate of return. Simply divide 72 by the interest rate or rate of return, Kane said

“It will take 144 years for your money to double if you put it into a savings account at 0.5%,” she said. “If your investments are currently earning 7.2% each year, then it would only take 10 years for your money to double.”

Another downside is that you will lose out on the tax-deferred benefit of retirement accounts, Kane said. You only pay taxes when you take money out of your retirement accounts, but in a non-retirement account, you pay taxes in the year that you receive interest, dividends or sell any securities, she said.

But if you’re not happy with where the money is, you have other options.

You can transfer the account to an IRA at another custodian.

You didn’t say whether this account was a 401(k) or other employer plan, but if it is, moving the funds to an IRA will give you unlimited investment options.

So the real question here is why you want to move the money.

That’s a topic you could take to a financial advisor who can help you look at your goals, see what kind of income you need for retirement and how to best structure your finances going forward.

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This story was originally published on March 10, 2022.

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.