5 Retirement Questions Your 401(k) Provider Can’t Answer

Is your 401(k) provider your retirement planner?

No, and it has never claimed to be. Fidelity, Vanguard, Schwab or whoever holds your accounts is a custodian. It holds your money, processes transactions and offers investment options. After years of checking a balance on the custodian’s app, many people start treating that balance as a plan. Robert sees what that costs: the balance feels like security, and security comes from a plan that shows what the balance becomes once you have to live on it.

Why can’t a balance answer the five questions?

Each of them turns on something the app does not track. Spending for 25 to 30 years depends on taxes, inflation and the order you draw from accounts. The order itself might run taxable, then pre-tax, then Roth, or follow a different sequence depending on your tax picture. The Social Security question interacts with your taxes, your spouse’s benefit and your income floor. A 30% drop in year two, while you are selling shares to cover living costs, does far more damage than the same drop in year twelve. And your after-tax income is what you can spend, which the balance never shows.

Why do investment management and retirement planning get confused?

Robert is fair to custodians and to most advisors, who do the job they were hired for. The trouble is that the two jobs differ, and the industry blurs the line between them. Investment management covers portfolio construction, allocation, rebalancing and performance, and most advisors are good at it. Retirement planning covers income sequencing, tax strategy, Social Security, required minimum distributions, health care costs and protection against a bad sequence of returns. Few advisors do the second job, and seldom does anyone tell you which job they are doing. Couples go years with an excellent investment manager and no retirement plan, and find out 18 months before they retire, when they try to work out which account to draw from first. The difference between the two roles is set out in full elsewhere on the site.

Which three questions should you ask your advisor?

Book a meeting with whoever manages your investments and ask:

1. Can you show me my projected first required minimum distribution and the tax bracket it puts me in?
2. Can you show me a Roth conversion analysis for the years between my retirement and that RMD date?
3. Can you show me a month-by-month income map for my first ten years of retirement, with the account I draw from each month?

If your advisor answers all three with your own numbers, that is a good sign. If the answer turns to investment performance, or to a promise to look into it, you have learned something. The RMD glossary entry shows how the first number is calculated, and the RMD exposure guide shows how a large pre-tax balance grows into a large forced withdrawal.

What should you do with the answers?

Building a portfolio and building a retirement income plan are different problems. Both matter, and the second is the one that answers the question you are asking: are we going to be okay? If the three questions come back thin, Robert’s 30-minute retirement clarity call is a look at what a written plan would show for your numbers.