AUTHOR: BenefitJack on 8/16/2025 FIRST: Neil Imus on 8/17/2025 | RECENT: BenefitJack on 1/31
Comments
Just a short update. Not only will you want to investigate this opportunity. You will also want to prompt your employer to consider adding Trump Accounts to your cafeteria plan. Effectively, this treats your child's Trump Account on much the same basis as a Health Savings Account, in terms of the option to use such savings as income in retirement (after age 65). Money goes in pre-tax for Fed, State, FICA, FICA-Med, accumulates tax deferred, and while it is taxable as ordinary income after age 65, ... the tax preferences are significant. Because they are pre-tax for FICA and FICA-Med, it also provides a modest financial incentive for the employer to add this feature to their cafeteria plan. Even if you are not interested, you can do your coworkers a favor by pitching this to your employer. https://401kspecialistmag.com/trump-is-no-franklin-but/ https://401kspecialistmag.com/let-ben-franklin-create-middle-class-millionaires-eradicate-poverty-in-america/ America is 250 years old. Embrace the commitment of Ben Franklin, invest in America's future - our children, grandchildren. Let's go!
Lots to consider. Typically, a rollover/direct transfer decision is a once in a lifetime decision (for monies in that plan), so, it is typically worth your while to investigate fully, and to have a trusted advisor (not the IRA vendor) review. ERISA protections go beyond bankruptcy. Your employer-sponsored plans are separate legal entities - not part of the union nor the plan sponsor. The fiduciary protections in a plan subject to ERISA are better than IRAs. Further, if your employer sponsored plan is like mine, where there are billions in assets and tens of thousands of participants, including thousands like me who no longer work there, we are all watching the plan sponsor and plan fiduciaries. Lots of litigation out there where plan fiduciaries make mistakes. When you ask about consolidation, I assume you are asking about a rollover or a direct transfer to an IRA or to another employer sponsored plan, right? If so, compare fees, investments, and tax-free liquidity, as well as the receiving plan's provisions for incoming transfers. I mention liquidity because some ERISA plans allow for loans to be initiated post-separation - where borrowing from your account might be more favorable than what you might obtain from a commercial source - in situation. Note that a rollover of Roth assets to a Roth IRA, per the IRS, precludes a subsequent rollover to another employer's Roth 401k (there is legislation pending to change that, but don't hold your breath). Note also that the employer-sponsored plan may have specific rules about distributions at "normal retirement date", however that may be defined in the plan, or at the Required Beginning Date. It may vary from plan to plan, so the rules that apply to you may not be the same as for your spouse. This may have a unique application when it comes to Roth 401k assets, which, per the tax code, are not subject to RMD, but, there is no requirement for a union or employer-sponsored plan to allow you to continue the account past your "normal retirement date". Similarly, some plans allow only for a lump sum payment, others for installments, and still others offer various forms of guaranteed income. Note that the processing of distributions to comply with RMD is slightly different for tax-qualified employer sponsored plans compared to IRAs. Not sure what 65 basis points includes, however, I suspect that is an "all in" fee that includes investment management fees and recordkeeping costs. For comparison, I have a Fidelity IRA with no administrative fees, and I am paying less than 5 basis points on my index investments. I am confident other vendors offer comparable value. For comparison, my 401k from a prior employer, where my account has a my lifetime of savings, has an administrative fee of about $24 a year, and my S&P 500 index fund has an asset management fee of ~1 basis point. Bottom line, it depends. So, assuming you are age 60, and that you are investing for another 30 years, a 60 basis point difference on $100,000 in savings, is $600 a year.
Thanks. Very important information. Let me add some other considerations in support of the loss avoidence and cost saving "extended warranty" you may get by retaining assets from ERISA fiduciary protections that are part of your 401k or 403b plan. An excerpt from my Fall 2018 Plan Sponsor Council of America DC Insights Leadership Letter (I did not update it): "I never buy the extended warranty on a product, except … (long) ago, a Japanese insurance executive asked me whether I felt responsible for workers who made mistakes or failed to take full advantage
of our 401(k) plan. Back then, I felt comfortable asserting that workers were
responsible for their own decisions. Since then, behavioral economics
studies, litigation, legislative and regulatory changes “moved the goalposts”
— prompting me to add automatic features and installment payments
and to encourage “asset retention.”
... In 1985, my plan design actually encouraged payout at separation.
Today, 30 percent of all plan participants are former employees, with
more than 30 percent of all plan assets, approximately $1.5 Billion! Today, the account is automatically continued after separation so participants can aggregate/consolidate their retirement savings. The “default” payout is annual installments commencing at the required beginning date as minimum required distributions. My spouse Debbie and I expect to be lifetime participants. (Assuming normal life expectancy, between us and our surviving children, we will have been participants in that plan from 1989 to 2055 or so - 65+ years). (in my plan sponsor role), and now solely as a participant in my plan, these fiduciary protections and design defaults serve as a valuable “extended warranty.” The value almost always exceeds the cost, (especially when you count losses and expenses avoided) because:
• Separated participants are already very familiar with the plan, a few
have 50 plus years of experience,
• There are about 50,000 participants with about $5 Billion, many have a
lifetime of savings and watch fiduciaries very closely,
• There is a guaranteed investment contract paying approximately
3 percent,
• Separated participants can access money on demand — either as a
withdrawal or as a loan, and
• Administrative and investment costs are very low due to plan design and
economies of scale. Many retirees lack the expertise to manage a lifetime of savings. “(M)any
older respondents are not financially sophisticated: they fail to grasp
essential aspects of risk diversification, asset valuation, portfolio choice, and
investment fees” (A. Lusardi, O. Mitchell, V. Curto). “The prevalence of dementia explodes after age 60 … the diagnosis of cognitive impairment
without dementia is nearly 30 percent between ages 80 and 89. … in studying financial mistakes (suboptimal use of credit card balance transfers,
mis-estimation of the value of one’s house, excess interest rate and fee
payments), (we) find that financial mistakes follow a U-shaped pattern,
with cost-minimizing performance occurring around age 53” (S. Agarwal,
J. Driscoll, X. Gabaix, D. Laibson). Retirees may also be financially vulnerable (M. Lachs, S. D. Han). So, upon reaching age 70½, 18 plus years after one estimate of peak financial cognitive capability (S. Agarwal, J. Driscoll, X. Gabaix, D. Laibson),
we require retirees to make a payout decision regarding a lifetime of retirement savings. Perhaps unknown to most participants, the “extended warranty’s” best
value may be the fiduciary protections and design defaults. Fiduciaries are
often “prudent experts.” They are required to act solely in the best
interest of participants, to carefully select and monitor the investments
and the administrators. Importantly, a plan’s “extended warranty” may be even more valuable
throughout participants’ retirement/payout years. See also: https://www.dol.gov/agencies/ebsa/about-ebsa/about-us/erisa-advisory-council/2020-considerations-for-recognizing-and-addressing-participants-with-diminished-capacity
Every individual is unique. The challenge here is multi-faceted. For some, it is about maximizing present value. For others, CIF may be more about avoiding leaving money on the table. (Never heard of "Cash in Fist" before). Myself, we had unique issues (GPO, significant differences in worker and spouse life expectancy, working past SSFRA, etc.), To me, the two most important considerations about Social Security claiming (among many other concerns and considerations):
First, in the past, few people did exactly what you did, seriously consider the different options, including not only "present value", but how you planned to use the money after commencement, other risks of claiming and deferred claiming, and
Second, how Social Security is the only "annuity" available which provides guaranteed, inflation indexed income and a surviving spouse benefit. The first item didn't happen for many Americans in the past (and even today) because they were unable to continue employment (involuntary job loss, illness, care giver, etc.) and they arrived at older age having failed to save enough or secure other sources of income (pension, self-employment income, business ownership, etc.) And, until a decade or so ago, the claiming rules allowed you to start and stop and restart. The second item is for those who have saved, but whose monthly income is not sufficient to cover everyday expenses. It allows individuals to consider using accumulated assets to buy a SS "annuity" by creating an income "bridge" to deferred claiming, whether to SSFRA or to age 70. That strategy allows for more aggressive investing of other assets not used for income replacement and it may be the most effective option for minimizing the risk of a reduced standard of living throughout retirement (especially where inflation rears its ugly head after retirement). One wise sage once told me if you take the time to be informed, "you never make a wrong decision". Sometime in the future, circumstance/fate may suggest you could have done better had you made different choices (Oh! I coulda had a V-8!). But, whatever you chose after informed deliberation, the option you selected was always, always the right one based on what you knew, when. Finally, a recent study just released suggests that there is added value to be gotten by acknowledging and accepting behavioral preferences for early claiming, even at age 62, where the perceived value of those preferences (CIF, for example) outweight clear differences in present value.
Nothing wrong with providing 401k participants access to annuity purchase platform where they can evaluate the many different kinds of guaranteed income products - annuities, GMWB, etc. However, that is not what Vanguard is doing. What they are doing is adding a guaranteed income feature to their target date fund series. That is adding an opaque insurance product to an already opaque investment option - where the same investment option is typically the one selected as the Qualified Default Investment Alternative (QDIA). The QDIA is the investment option used for participants who have no idea how to invest and those who don't want to make investment decisions. So, only the uninformed support embedding a guaranteed income feature (annuity insurance contract) within a target date fund series, such as Vanguard is proposing. Simply, embedding an opaque feature in an already opaque investment option takes advantage of participants who were either defaulted into the TDF or who affirmatively selected the TDF (because they were uncomfortable making investment decisions). By adding the guaranteed income feature, the typical process is to start at age 50, by changing the allocation in the target date fund, to take some of the equity investment and some of the bond investment, and use it to purchase an increment of income guarantee (insurance/annuity). That reallocation continues along the glide path for the next 15 years, such that by the time the individual reaches age 65, 15% – 25% – 33% of all assets have been used to purchase an insurance contract. Because TDF disclosures do not typically include specific detail of the underlying funds, and more importantly, for those who accept the default or select the TDF to avoid investment decision making, even if there are disclosures, few read them. So, what’s wrong with that? First, the embedded guaranteed income feature will be a single form of annuity. By definition, it won’t be best option for everyone in a highly diverse workforce, with highly diverse account balances and needs. Second, given historical take up rates for guaranteed income product, only 5% – 10% will actually annuitize, commence monthly insured/guaranteed payouts. The remainder will forego annuitization, deciding against the guaranteed income/annuity, meaning that they paid insurance premiums for 15 or more years and got nothing for it. Third, the plan investment fiduciary has to decide what option to offer, and there is no way they can identify the one, the very best option, for even a minority of participants who ultimately annuitize … because there is no such very best option. Fourth, fifteen years from now, during the period of incremental purchase, insurers will introduce a number of other forms of guaranteed income, some with superior features or lower fees. However, the plan and the participants are stuck with the annuity already purchased – unless they distribute the annuity to an IRA and the individual goes through the expensive process of a 1035 exchange. Fifth, wary individuals who see the change starting at age 50, and opt out of the TDF, those who accept the default or those who selected the TDF because they didn't feel capable of making investment decisions, they will now have to make other, affirmative investment decisions because plans typically don't have two sets of TDFs. Sixth (and I could go on), any annuity under consideration is already available as an individual annuity in the marketplace, all you have to do is roll over assets to an IRA and make the purchase – so, why would we want employers to make this decision, and stick everyone in a single choice that doesn't meet the needs of the vast majority of participants. So, why would service providers take this action to embed guaranteed income into the target date fund series, it is called increased asset retention, plus more fees, more revenues, more profits.
Here is my solution, based on my 45+ years in corporate employee benefits: Basic concept: (1) Individuals should be responsible for that which is budgetable.
(2) Society should be responsible for that which is not budgetable. Funding what is not budgetable: A national stop loss/reinsurance system with a $25,000 per capita, per year attachment point, where provider charges are limited to either the Medicaid or Medicare allowable for expenses in excess of the attachment point – funded by general revenues from a per capita premium. That is all American citizens, and all non-citizens who are lawfully present, are automatically covered by the stop loss (part of an individual mandate) and each must pay the per capita stop loss/reinsurance premium collected as an income tax (where all the regular income tax rules apply, and where non-payment accumulates with interest). Should be something like $500 a year, or ~$40/person/month (revenue of approximately $200 Billion). Employers and not-for-profits could pay the premium on others behalf if they so chose to. One estimate of cost for stop loss for an employer-sponsored plan: https://ethosbenefits.com/how-much-does-stop-loss-insurance-cost/ Funding What is Budgetable: Each US Citizen, and all lawfully present in the United States are individually responsible for medical expenses up to $25,000 a year. Where individuals purchase insurance, there would be no point of purchase cost sharing (deductibles, copayments, coinsurance) on preventive care and primary care, and individuals could contribute to a Health Savings Account on a tax preferred basis (same rules as today). Coverage could be provided by employer sponsored plans, individual insurance, options available in the public exchange, Medicare, Medicaid, VA (as all are available today) or an individual could post a bond and self-insure. The only difference is that the "individual mandate" applies to all, there are no free riders, and there is a $25,000 cap on covered expenses per year. All are automoatically enrolled in a public exchange coverage default option each November - no free riders. Those who can show other coverage (individual, employer, exchange, Medicare, Medicaid, VA or post a bond) can opt out of the default option. Those who can't show other coverage are covered, and premiums would be paid via income tax withholding (either from wages or estimated). The cost of $25,000 in coverage per year is likely to be less than $1,800 per person, or $150 a month, on average – with age-based, unisex rates, ranging from about $500 a year for a child under age 18, to $5,000 a year for those age 65+ (who are not yet eligible for Medicare). The result is "affordable", universal coverage, where the coverage prior to the attachment point is “equitable” (both vertically and horizontally equitable, treating similarly situated individuals the same, and differently situated individuals differently, proportionately) relative to the anticipated cost. All non-citizens who are not "lawfully present", including those who are here on vacation, or business, as well as those who are here awaiting processing of their claims for asylum, are individually responsible for their own medical needs - other than stabilization per EMTALA. They are not eligible for exchange coverage, Medicare, Medicaid, or Stop Loss. Bottom line, Americans want the best health care coverage YOUR money will buy. And, so long as we let Congress asserts that health care coverage is a right, and so long as Congress has authority to subsidize coverage, by running $1 - $2 Trillion a year in annual deficits, sending the bill to Americans too young to vote and generations unborn, we won't solve this problem. Since Health Reform was signed into law by President Obama, March 23, 2010, we have added $27 Trillion to our national debt.
Thanks. However, the better option for many who need liquidity prior to age 55 or age 59 1/2, would be to borrow from the plan. Done right, plan loans can improve both retirement preparation and household wealth - especially for those term vested who are not yet age 55.
For the last 15 years, the interest rate on plan loans has exceeded the interest rate on almost all bond investments. So, assuming you rebalance your account to the appropriate allocation of assets, the interest you paid on your plan loan was higher than the interest rate on other bond investments offered by your plan - improving your retirement preparation. And, assuming that the plan loan had an interest rate less than the rate you would have paid on a commercial loan (if the commercial loan rate was lower, you would have chosen that, right?), that means that you paid less interest on the liquidity you needed - improving your household wealth.
Take it from a 401k Subject Matter Expert: Loan interest is never double-taxed. Let's start at a different point. When you need liquidity, and you don't have cash lying around, you either borrow from a commercial source or from your 401k. If you borrow from a commercial source, the interest you pay may or may not be tax deductible, depending on the purpose. You certainly don't get that interest back at a later date. You won't borrow from the 401k if the commercial loan provides a better value. And, you won't borrow commercially if the 401k offers a better value. In fact, given all of the credit card debt in America, payday loans, etc., there are many studies that suggest Americans should borrow more from their 401k to retire those debts. So, think of your 401k as the Bank of Sanjib:
Save
Get company match
Invest
Accumulate
Borrow to meet a current need
Adjust your investments as necessary treat the plan loan principal as the fixed income investment it is (fixed rate of interest) so you don't negatively impact your investment returns
Continue to contribute while repaying the loan, rebuilding the account for a future, greater need,
Repeat as necessary, up to and throughout retirement.
Done right, repaid in full, a plan loan will improve both your household wealth and your retirement preparation. First, when you take a loan, it is secured with assets in your 401k. That means that the assets are converted from whatever investment you had into a fixed income investment, like a bond (same as a bank). The fixed income rate of return is the interest rate you pay. So, first step. Because the principal never leaves the plan, it becomes a fixed income investment, you should examine your asset allocation after the loan is made to ensure you haven't deviated from your investment strategy. Second, the interest you pay on your 401k loan may be tax deductible. If the loan is secured with a home mortgage (where interest is otherwise deductible), or starting in 2025 through 2028, new tax code section 6055AA may allow for an "above the line" tax deduction of interest on a loan secured by a lein on a qualified passenger vehicle. Third, unlike the bank, where interest you pay on a bank loan is always taxable income, the taxation of the interest you pay can be either taxable monies when distributed or tax free:
If the loan principal is secured with tax deferred or after tax assets, not Roth, the interest will be taxable income when distributed, but
If the loan principal is secured with Roth assets, the interest may qualify for tax free treatment if distributed after 59 1/2 and 5 years participation in the plan.
But to answer your initial question, the interest isn't double taxed. The interest you pay on the loan is treated the same as it would be for any other loan - it is either tax deductible or it isn't. The interest you receive at distribution is not the same interest. It is treated the same as any other dollar of interest you earned on your 401k investments. The challenge is that most plan sponsors and their recordkeepers think of 401k loans as leakage. Most recordkeepers haven't updated their processing to 21st Century functionality - they still require payroll deduction, which is so 20th Century. Most everyone reading this post already pays at least one bill electronically. Why not your 401k loans?
Thanks for the post. I have three recommendations:
Don't start until you reach age 50 or so,
Perform an individual calculation, and
The target should be at least continuation of the pre-retirement stream of income (take the average over the last three or so calendar years), net after taxes. When we conducted pre-retirement planning seminars, I would create a confidential, individual, early retirement income replacement analysis for each participant - based solely on what I could see in HR/Benefits from their indicative data and benefits - their 401k savings rate, their 401k account balance paid in installments to match RMD (the RBD was age 70 1/2, but the tables go down to folks in their 50's and below), their pension benefit, a guesstimated benefit from Social Security, the cost of retiree medical and retiree life insurance, etc. I leveraged their total rewards statement data as of the end of the prior calendar year (the RSVP authorized me to create the calculation). If they were under age 55, I assumed they would continue their employment until becoming eligible for an immediately payable pension benefit and retiree medical and life. If they were under age 62 (most were), I used the pension plan's level income feature to bridge them until reaching eligibility for SS benefits. Those who had saved/were saving, who had 25 or more years of service and participation in the 401k, were almost all on track for a replacement rate sufficient to squeak by in early retirement. The analysis had many disclaimers - three important ones were:
Inflation in retirement is the Rule of 72 in Reverse - take the inflation rate, divide it into 72, and, that's how many years until the purchasing power of a nominal monthly benefit is halved,
The assumptions were clearly stated as was confirmation that we didn't know any details, that the illustration was intended solely to prompt additional analysis and NOT to be relied upon, and
Because at least one member of the couple would likely live until reaching age 90+, every individual should give some thought to continuing employment long past the earliest date they would be eligible to commence benefits.
Most everyone was age 50+ when they attended the retirement preparation seminar, and many had a goal of retiring at the double nickel (55). Most everyone who attended, kept working and many delayed retirement until the combination of Social Security and their defined benefit pension (without tapping into the 401k plan) was sufficient to maintain their pre-retirement standard of living (stream of net income, after taxes). Today, at that same employer, the benefits remain generous, there is still a pension plan, but, not so much - folks would have to save for 35+ years, and defer retirement to their Social Security Full Retirement Age or later in order to be able to maintain their pre-retirement standard of living (stream of net income, after taxes) using only the pension benefit and Social Security.
Comments
Just a short update. Not only will you want to investigate this opportunity. You will also want to prompt your employer to consider adding Trump Accounts to your cafeteria plan. Effectively, this treats your child's Trump Account on much the same basis as a Health Savings Account, in terms of the option to use such savings as income in retirement (after age 65). Money goes in pre-tax for Fed, State, FICA, FICA-Med, accumulates tax deferred, and while it is taxable as ordinary income after age 65, ... the tax preferences are significant. Because they are pre-tax for FICA and FICA-Med, it also provides a modest financial incentive for the employer to add this feature to their cafeteria plan. Even if you are not interested, you can do your coworkers a favor by pitching this to your employer. https://401kspecialistmag.com/trump-is-no-franklin-but/ https://401kspecialistmag.com/let-ben-franklin-create-middle-class-millionaires-eradicate-poverty-in-america/ America is 250 years old. Embrace the commitment of Ben Franklin, invest in America's future - our children, grandchildren. Let's go!
Post: Trump Accounts
Link to comment from January 31, 2026
Lots to consider. Typically, a rollover/direct transfer decision is a once in a lifetime decision (for monies in that plan), so, it is typically worth your while to investigate fully, and to have a trusted advisor (not the IRA vendor) review. ERISA protections go beyond bankruptcy. Your employer-sponsored plans are separate legal entities - not part of the union nor the plan sponsor. The fiduciary protections in a plan subject to ERISA are better than IRAs. Further, if your employer sponsored plan is like mine, where there are billions in assets and tens of thousands of participants, including thousands like me who no longer work there, we are all watching the plan sponsor and plan fiduciaries. Lots of litigation out there where plan fiduciaries make mistakes. When you ask about consolidation, I assume you are asking about a rollover or a direct transfer to an IRA or to another employer sponsored plan, right? If so, compare fees, investments, and tax-free liquidity, as well as the receiving plan's provisions for incoming transfers. I mention liquidity because some ERISA plans allow for loans to be initiated post-separation - where borrowing from your account might be more favorable than what you might obtain from a commercial source - in situation. Note that a rollover of Roth assets to a Roth IRA, per the IRS, precludes a subsequent rollover to another employer's Roth 401k (there is legislation pending to change that, but don't hold your breath). Note also that the employer-sponsored plan may have specific rules about distributions at "normal retirement date", however that may be defined in the plan, or at the Required Beginning Date. It may vary from plan to plan, so the rules that apply to you may not be the same as for your spouse. This may have a unique application when it comes to Roth 401k assets, which, per the tax code, are not subject to RMD, but, there is no requirement for a union or employer-sponsored plan to allow you to continue the account past your "normal retirement date". Similarly, some plans allow only for a lump sum payment, others for installments, and still others offer various forms of guaranteed income. Note that the processing of distributions to comply with RMD is slightly different for tax-qualified employer sponsored plans compared to IRAs. Not sure what 65 basis points includes, however, I suspect that is an "all in" fee that includes investment management fees and recordkeeping costs. For comparison, I have a Fidelity IRA with no administrative fees, and I am paying less than 5 basis points on my index investments. I am confident other vendors offer comparable value. For comparison, my 401k from a prior employer, where my account has a my lifetime of savings, has an administrative fee of about $24 a year, and my S&P 500 index fund has an asset management fee of ~1 basis point. Bottom line, it depends. So, assuming you are age 60, and that you are investing for another 30 years, a 60 basis point difference on $100,000 in savings, is $600 a year.
Post: Consolidating 401(k)s in retirement
Link to comment from January 10, 2026
Thanks. Very important information. Let me add some other considerations in support of the loss avoidence and cost saving "extended warranty" you may get by retaining assets from ERISA fiduciary protections that are part of your 401k or 403b plan. An excerpt from my Fall 2018 Plan Sponsor Council of America DC Insights Leadership Letter (I did not update it): "I never buy the extended warranty on a product, except … (long) ago, a Japanese insurance executive asked me whether I felt responsible for workers who made mistakes or failed to take full advantage of our 401(k) plan. Back then, I felt comfortable asserting that workers were responsible for their own decisions. Since then, behavioral economics studies, litigation, legislative and regulatory changes “moved the goalposts” — prompting me to add automatic features and installment payments and to encourage “asset retention.” ... In 1985, my plan design actually encouraged payout at separation. Today, 30 percent of all plan participants are former employees, with more than 30 percent of all plan assets, approximately $1.5 Billion! Today, the account is automatically continued after separation so participants can aggregate/consolidate their retirement savings. The “default” payout is annual installments commencing at the required beginning date as minimum required distributions. My spouse Debbie and I expect to be lifetime participants. (Assuming normal life expectancy, between us and our surviving children, we will have been participants in that plan from 1989 to 2055 or so - 65+ years). (in my plan sponsor role), and now solely as a participant in my plan, these fiduciary protections and design defaults serve as a valuable “extended warranty.” The value almost always exceeds the cost, (especially when you count losses and expenses avoided) because: • Separated participants are already very familiar with the plan, a few have 50 plus years of experience, • There are about 50,000 participants with about $5 Billion, many have a lifetime of savings and watch fiduciaries very closely, • There is a guaranteed investment contract paying approximately 3 percent, • Separated participants can access money on demand — either as a withdrawal or as a loan, and • Administrative and investment costs are very low due to plan design and economies of scale. Many retirees lack the expertise to manage a lifetime of savings. “(M)any older respondents are not financially sophisticated: they fail to grasp essential aspects of risk diversification, asset valuation, portfolio choice, and investment fees” (A. Lusardi, O. Mitchell, V. Curto). “The prevalence of dementia explodes after age 60 … the diagnosis of cognitive impairment without dementia is nearly 30 percent between ages 80 and 89. … in studying financial mistakes (suboptimal use of credit card balance transfers, mis-estimation of the value of one’s house, excess interest rate and fee payments), (we) find that financial mistakes follow a U-shaped pattern, with cost-minimizing performance occurring around age 53” (S. Agarwal, J. Driscoll, X. Gabaix, D. Laibson). Retirees may also be financially vulnerable (M. Lachs, S. D. Han). So, upon reaching age 70½, 18 plus years after one estimate of peak financial cognitive capability (S. Agarwal, J. Driscoll, X. Gabaix, D. Laibson), we require retirees to make a payout decision regarding a lifetime of retirement savings. Perhaps unknown to most participants, the “extended warranty’s” best value may be the fiduciary protections and design defaults. Fiduciaries are often “prudent experts.” They are required to act solely in the best interest of participants, to carefully select and monitor the investments and the administrators. Importantly, a plan’s “extended warranty” may be even more valuable throughout participants’ retirement/payout years. See also: https://www.dol.gov/agencies/ebsa/about-ebsa/about-us/erisa-advisory-council/2020-considerations-for-recognizing-and-addressing-participants-with-diminished-capacity
Post: Asset Protection Ideas
Link to comment from January 10, 2026
Every individual is unique. The challenge here is multi-faceted. For some, it is about maximizing present value. For others, CIF may be more about avoiding leaving money on the table. (Never heard of "Cash in Fist" before). Myself, we had unique issues (GPO, significant differences in worker and spouse life expectancy, working past SSFRA, etc.), To me, the two most important considerations about Social Security claiming (among many other concerns and considerations): First, in the past, few people did exactly what you did, seriously consider the different options, including not only "present value", but how you planned to use the money after commencement, other risks of claiming and deferred claiming, and Second, how Social Security is the only "annuity" available which provides guaranteed, inflation indexed income and a surviving spouse benefit. The first item didn't happen for many Americans in the past (and even today) because they were unable to continue employment (involuntary job loss, illness, care giver, etc.) and they arrived at older age having failed to save enough or secure other sources of income (pension, self-employment income, business ownership, etc.) And, until a decade or so ago, the claiming rules allowed you to start and stop and restart. The second item is for those who have saved, but whose monthly income is not sufficient to cover everyday expenses. It allows individuals to consider using accumulated assets to buy a SS "annuity" by creating an income "bridge" to deferred claiming, whether to SSFRA or to age 70. That strategy allows for more aggressive investing of other assets not used for income replacement and it may be the most effective option for minimizing the risk of a reduced standard of living throughout retirement (especially where inflation rears its ugly head after retirement). One wise sage once told me if you take the time to be informed, "you never make a wrong decision". Sometime in the future, circumstance/fate may suggest you could have done better had you made different choices (Oh! I coulda had a V-8!). But, whatever you chose after informed deliberation, the option you selected was always, always the right one based on what you knew, when. Finally, a recent study just released suggests that there is added value to be gotten by acknowledging and accepting behavioral preferences for early claiming, even at age 62, where the perceived value of those preferences (CIF, for example) outweight clear differences in present value.
Post: Social Security – Why I Chose FRA
Link to comment from December 27, 2025
Nothing wrong with providing 401k participants access to annuity purchase platform where they can evaluate the many different kinds of guaranteed income products - annuities, GMWB, etc. However, that is not what Vanguard is doing. What they are doing is adding a guaranteed income feature to their target date fund series. That is adding an opaque insurance product to an already opaque investment option - where the same investment option is typically the one selected as the Qualified Default Investment Alternative (QDIA). The QDIA is the investment option used for participants who have no idea how to invest and those who don't want to make investment decisions. So, only the uninformed support embedding a guaranteed income feature (annuity insurance contract) within a target date fund series, such as Vanguard is proposing. Simply, embedding an opaque feature in an already opaque investment option takes advantage of participants who were either defaulted into the TDF or who affirmatively selected the TDF (because they were uncomfortable making investment decisions). By adding the guaranteed income feature, the typical process is to start at age 50, by changing the allocation in the target date fund, to take some of the equity investment and some of the bond investment, and use it to purchase an increment of income guarantee (insurance/annuity). That reallocation continues along the glide path for the next 15 years, such that by the time the individual reaches age 65, 15% – 25% – 33% of all assets have been used to purchase an insurance contract. Because TDF disclosures do not typically include specific detail of the underlying funds, and more importantly, for those who accept the default or select the TDF to avoid investment decision making, even if there are disclosures, few read them. So, what’s wrong with that? First, the embedded guaranteed income feature will be a single form of annuity. By definition, it won’t be best option for everyone in a highly diverse workforce, with highly diverse account balances and needs. Second, given historical take up rates for guaranteed income product, only 5% – 10% will actually annuitize, commence monthly insured/guaranteed payouts. The remainder will forego annuitization, deciding against the guaranteed income/annuity, meaning that they paid insurance premiums for 15 or more years and got nothing for it. Third, the plan investment fiduciary has to decide what option to offer, and there is no way they can identify the one, the very best option, for even a minority of participants who ultimately annuitize … because there is no such very best option. Fourth, fifteen years from now, during the period of incremental purchase, insurers will introduce a number of other forms of guaranteed income, some with superior features or lower fees. However, the plan and the participants are stuck with the annuity already purchased – unless they distribute the annuity to an IRA and the individual goes through the expensive process of a 1035 exchange. Fifth, wary individuals who see the change starting at age 50, and opt out of the TDF, those who accept the default or those who selected the TDF because they didn't feel capable of making investment decisions, they will now have to make other, affirmative investment decisions because plans typically don't have two sets of TDFs. Sixth (and I could go on), any annuity under consideration is already available as an individual annuity in the marketplace, all you have to do is roll over assets to an IRA and make the purchase – so, why would we want employers to make this decision, and stick everyone in a single choice that doesn't meet the needs of the vast majority of participants. So, why would service providers take this action to embed guaranteed income into the target date fund series, it is called increased asset retention, plus more fees, more revenues, more profits.
Post: The annuities are coming, the annuities are coming‼️
Link to comment from December 4, 2025
Here is my solution, based on my 45+ years in corporate employee benefits: Basic concept: (1) Individuals should be responsible for that which is budgetable. (2) Society should be responsible for that which is not budgetable. Funding what is not budgetable: A national stop loss/reinsurance system with a $25,000 per capita, per year attachment point, where provider charges are limited to either the Medicaid or Medicare allowable for expenses in excess of the attachment point – funded by general revenues from a per capita premium. That is all American citizens, and all non-citizens who are lawfully present, are automatically covered by the stop loss (part of an individual mandate) and each must pay the per capita stop loss/reinsurance premium collected as an income tax (where all the regular income tax rules apply, and where non-payment accumulates with interest). Should be something like $500 a year, or ~$40/person/month (revenue of approximately $200 Billion). Employers and not-for-profits could pay the premium on others behalf if they so chose to. One estimate of cost for stop loss for an employer-sponsored plan: https://ethosbenefits.com/how-much-does-stop-loss-insurance-cost/ Funding What is Budgetable: Each US Citizen, and all lawfully present in the United States are individually responsible for medical expenses up to $25,000 a year. Where individuals purchase insurance, there would be no point of purchase cost sharing (deductibles, copayments, coinsurance) on preventive care and primary care, and individuals could contribute to a Health Savings Account on a tax preferred basis (same rules as today). Coverage could be provided by employer sponsored plans, individual insurance, options available in the public exchange, Medicare, Medicaid, VA (as all are available today) or an individual could post a bond and self-insure. The only difference is that the "individual mandate" applies to all, there are no free riders, and there is a $25,000 cap on covered expenses per year. All are automoatically enrolled in a public exchange coverage default option each November - no free riders. Those who can show other coverage (individual, employer, exchange, Medicare, Medicaid, VA or post a bond) can opt out of the default option. Those who can't show other coverage are covered, and premiums would be paid via income tax withholding (either from wages or estimated). The cost of $25,000 in coverage per year is likely to be less than $1,800 per person, or $150 a month, on average – with age-based, unisex rates, ranging from about $500 a year for a child under age 18, to $5,000 a year for those age 65+ (who are not yet eligible for Medicare). The result is "affordable", universal coverage, where the coverage prior to the attachment point is “equitable” (both vertically and horizontally equitable, treating similarly situated individuals the same, and differently situated individuals differently, proportionately) relative to the anticipated cost. All non-citizens who are not "lawfully present", including those who are here on vacation, or business, as well as those who are here awaiting processing of their claims for asylum, are individually responsible for their own medical needs - other than stabilization per EMTALA. They are not eligible for exchange coverage, Medicare, Medicaid, or Stop Loss. Bottom line, Americans want the best health care coverage YOUR money will buy. And, so long as we let Congress asserts that health care coverage is a right, and so long as Congress has authority to subsidize coverage, by running $1 - $2 Trillion a year in annual deficits, sending the bill to Americans too young to vote and generations unborn, we won't solve this problem. Since Health Reform was signed into law by President Obama, March 23, 2010, we have added $27 Trillion to our national debt.
Post: About those US medical costs….
Link to comment from November 18, 2025
Thanks. However, the better option for many who need liquidity prior to age 55 or age 59 1/2, would be to borrow from the plan. Done right, plan loans can improve both retirement preparation and household wealth - especially for those term vested who are not yet age 55.
Post: Rule of 55: Early Retirement
Link to comment from November 18, 2025
For the last 15 years, the interest rate on plan loans has exceeded the interest rate on almost all bond investments. So, assuming you rebalance your account to the appropriate allocation of assets, the interest you paid on your plan loan was higher than the interest rate on other bond investments offered by your plan - improving your retirement preparation. And, assuming that the plan loan had an interest rate less than the rate you would have paid on a commercial loan (if the commercial loan rate was lower, you would have chosen that, right?), that means that you paid less interest on the liquidity you needed - improving your household wealth.
Post: Logic Check: 401(k) Loan – Paying Taxes Twice?
Link to comment from November 9, 2025
Take it from a 401k Subject Matter Expert: Loan interest is never double-taxed. Let's start at a different point. When you need liquidity, and you don't have cash lying around, you either borrow from a commercial source or from your 401k. If you borrow from a commercial source, the interest you pay may or may not be tax deductible, depending on the purpose. You certainly don't get that interest back at a later date. You won't borrow from the 401k if the commercial loan provides a better value. And, you won't borrow commercially if the 401k offers a better value. In fact, given all of the credit card debt in America, payday loans, etc., there are many studies that suggest Americans should borrow more from their 401k to retire those debts. So, think of your 401k as the Bank of Sanjib:
- Save
- Get company match
- Invest
- Accumulate
- Borrow to meet a current need
- Adjust your investments as necessary treat the plan loan principal as the fixed income investment it is (fixed rate of interest) so you don't negatively impact your investment returns
- Continue to contribute while repaying the loan, rebuilding the account for a future, greater need,
- Repeat as necessary, up to and throughout retirement.
Done right, repaid in full, a plan loan will improve both your household wealth and your retirement preparation. First, when you take a loan, it is secured with assets in your 401k. That means that the assets are converted from whatever investment you had into a fixed income investment, like a bond (same as a bank). The fixed income rate of return is the interest rate you pay. So, first step. Because the principal never leaves the plan, it becomes a fixed income investment, you should examine your asset allocation after the loan is made to ensure you haven't deviated from your investment strategy. Second, the interest you pay on your 401k loan may be tax deductible. If the loan is secured with a home mortgage (where interest is otherwise deductible), or starting in 2025 through 2028, new tax code section 6055AA may allow for an "above the line" tax deduction of interest on a loan secured by a lein on a qualified passenger vehicle. Third, unlike the bank, where interest you pay on a bank loan is always taxable income, the taxation of the interest you pay can be either taxable monies when distributed or tax free:- If the loan principal is secured with tax deferred or after tax assets, not Roth, the interest will be taxable income when distributed, but
- If the loan principal is secured with Roth assets, the interest may qualify for tax free treatment if distributed after 59 1/2 and 5 years participation in the plan.
But to answer your initial question, the interest isn't double taxed. The interest you pay on the loan is treated the same as it would be for any other loan - it is either tax deductible or it isn't. The interest you receive at distribution is not the same interest. It is treated the same as any other dollar of interest you earned on your 401k investments. The challenge is that most plan sponsors and their recordkeepers think of 401k loans as leakage. Most recordkeepers haven't updated their processing to 21st Century functionality - they still require payroll deduction, which is so 20th Century. Most everyone reading this post already pays at least one bill electronically. Why not your 401k loans?Post: Logic Check: 401(k) Loan – Paying Taxes Twice?
Link to comment from November 9, 2025
Thanks for the post. I have three recommendations: Don't start until you reach age 50 or so, Perform an individual calculation, and The target should be at least continuation of the pre-retirement stream of income (take the average over the last three or so calendar years), net after taxes. When we conducted pre-retirement planning seminars, I would create a confidential, individual, early retirement income replacement analysis for each participant - based solely on what I could see in HR/Benefits from their indicative data and benefits - their 401k savings rate, their 401k account balance paid in installments to match RMD (the RBD was age 70 1/2, but the tables go down to folks in their 50's and below), their pension benefit, a guesstimated benefit from Social Security, the cost of retiree medical and retiree life insurance, etc. I leveraged their total rewards statement data as of the end of the prior calendar year (the RSVP authorized me to create the calculation). If they were under age 55, I assumed they would continue their employment until becoming eligible for an immediately payable pension benefit and retiree medical and life. If they were under age 62 (most were), I used the pension plan's level income feature to bridge them until reaching eligibility for SS benefits. Those who had saved/were saving, who had 25 or more years of service and participation in the 401k, were almost all on track for a replacement rate sufficient to squeak by in early retirement. The analysis had many disclaimers - three important ones were:
- Inflation in retirement is the Rule of 72 in Reverse - take the inflation rate, divide it into 72, and, that's how many years until the purchasing power of a nominal monthly benefit is halved,
- The assumptions were clearly stated as was confirmation that we didn't know any details, that the illustration was intended solely to prompt additional analysis and NOT to be relied upon, and
- Because at least one member of the couple would likely live until reaching age 90+, every individual should give some thought to continuing employment long past the earliest date they would be eligible to commence benefits.
Most everyone was age 50+ when they attended the retirement preparation seminar, and many had a goal of retiring at the double nickel (55). Most everyone who attended, kept working and many delayed retirement until the combination of Social Security and their defined benefit pension (without tapping into the 401k plan) was sufficient to maintain their pre-retirement standard of living (stream of net income, after taxes). Today, at that same employer, the benefits remain generous, there is still a pension plan, but, not so much - folks would have to save for 35+ years, and defer retirement to their Social Security Full Retirement Age or later in order to be able to maintain their pre-retirement standard of living (stream of net income, after taxes) using only the pension benefit and Social Security.Post: Retirement Income Goals: Bottom Up Beats Top-Down
Link to comment from October 11, 2025