Asked by Carla  |  Submitted November 06, 2015

Is it better to have one retirement account with a larger balance or two with smaller balances?

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  Answers  |  2

November 09, 2015

This is an interesting question and doesn’t have a right or wrong answer. Let me explain.

If we assume you are speaking of two retirement accounts of the same type (2x 401ks, 2x IRAs, etc.) the answer is purely determined by personal preference. There is no “planning advantage” to having either one large account or two smaller accounts.

If they are different types of accounts you may or may not be able to combine them. If one is a Roth IRA and the other is a tax-deferred retirement account (401k, IRA, etc.) then you are stuck with having two accounts.

Some people will separate into multiple accounts to have differing “time frames” on which they will access the money in each account. For instance, it might make it easier to have three accounts – one that is short term containing cash only (and is used to take your distributions from once retired.) A second account could be used for investments that will be spent in the next 2 to 5 years and finally a third account that is meant to be spent 5+ years or more from now. This is often called a “bucket strategy” and is easier for some people.

What works for you is really dependent upon your specific investments and your retirement income plan. Yes, you SHOULD have a “Retirement Income Plan” that outlines and details just how you will convert your retirement accounts into retirement income. Check with your financial advisor or find one that is qualified to design a Retirement Income Plan for you. Your financial advisor may have some ideas of their own that will fit your particular situation.

I hope this helps. I would be happy to answer any follow up questions you may have regarding how many accounts you should have and/or how to develop a Retirement Income Plan.
Brad Creger

$commenter.renderDisplayableName() | 09.20.20 @ 04:37


March 19, 2016

Hi Carla,

We get this one quite often.

There are 2 main views to this:
1), bigger is better plus with your eggs in one basket you can watch that basket much better
2). Smaller is more nimble and spreading those baskets around to a squirrel means there are always nuts to be found.

Now, lets dig deeper into your query. Obviously, size matters, along with diversification, the integrity of your administrator or portfolio manager to put your needs first, There are many other factors to consider.

There are other strategies like the 3 buckets. We love this one. It does not work very well if all the accounts are retirement accounts

Hypothetical example: Husband & Wife both age 65 with a $300,000 portfolio and they need $45,000 per year.

1) A growth strategy: For example: You have a $300,000 portfolio

How much ROI or return on investment do you need?

16%/yr CAGR which means our $300k will double ~ 4.5 years
8%/yr CAGR which means our $300k will double ~ 9 years
4%/yr CAGR which means our $300k will double ~ 18 years

How much time do you need?

2) A cash flow strategy: For example: You have a $300,000 portfolio and you need $45,000 /yr.

How much cash flow can you get?

$45k/yr is 15%/yr + $12k/yr Social Security OR + $12k/yr Social Security =$33k/yr or 11%/yr = $57k/yr

3) A combination of both:

For example: You have a $300k portfolio and you need $45k/yr.
$33k/yr in Cash flows with no growth
$12k/yr @ 8%/yr CAGR will double ~9years. -Margin of safety

What is inflation and your tax bracket?

Bottom line is what is/are the accounts doing for you.( i.e. are they getting and/or keeping you where you need to be financially?) What is your MARR (Minimum Acceptable Rate of Return)?

Send us a message to discuss.

It's not what you make, It's what you keep that determines your lifestyle.

$commenter.renderDisplayableName() | 09.20.20 @ 04:37