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Workers often forego billions of dollars in gains that they could have made off their retirement plans.
Why? They unknowingly roll their savings into cash holdings instead of new investments after they switch jobs.
When a 401(k) balance from an old company’s plan is rolled over into an individual retirement account (IRA), that money is usually held as cash until it is put into new investments held by the IRA.
Almost a third of workers who rolled savings into IRAs at Vanguard Group in 2015 still had the balance sitting in cash seven years later, the New York Times reported.
Americans with IRAs that hold a lot of cash forfeit more than $172 billion a year in retirement wealth that could have been made by investing in stocks and bonds, a Vanguard study estimates.
The error is common among younger workers who are used to their savings being automatically invested in company 401(k) plans. As a result, they run the risk of forsaking years of possible investment gains that compound over the years.
IRAs have $14.3 trillion in assets, versus $11.1 trillion in 401(k)-type plans, according to the Investment Company Institute, the fund industry's trade association.
Price Action: 401(k) plan administrators trended upward as of Tuesday’s mid-afternoon trading. Automatic Data Processing, Inc. (NASDAQ ADP) edged up 0.12% to $248.28, while Fidelity Investments (NASDAQ:FFIDX) gained 1.54% to $91.05 and T. Rowe Price, Inc. (NASDAQ:TROW) moved up 1.22% to $117.39.
Exchange-traded funds that track ADP declined for the most part by Tuesday afternoon.
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