Our mission: helping people save for retirement
If you’ve ever saved for retirement, chances are you’ve done so in an employer-sponsored account like a 401(k). Much like healthcare, we’ve come to expect that our employers will offer us a retirement account and nudge us to save & invest appropriately.
But what happens when we change jobs, as we do every few years? What do we do with the money we’ve saved?
A $100 billion problem
Unfortunately, we tend to do the wrong thing. Of the more than 15 million people who change jobs with a 401(k) each year, almost 5 million will prematurely “cash out” their account, withdrawing up to $100 billion in the process and paying billions in avoidable taxes and penalties. Once withdrawn, this money no longer grows to provide much-needed financial support during retirement.
Millions more leave their accounts behind for an extended period of time. Based on GAO data, there now may be almost 30 million “orphaned” 401(k) accounts — retirement savings tied to former employers that we’ve forgotten about or have delayed reclaiming. We quickly lose track of what these accounts are invested in and what fees we’re paying as we move throughout our careers.
Put bluntly, much of the good work we do saving in a 401(k) account gets undone when we change jobs. Why?
A broken rollover process
At Capitalize, we believe the culprit is a manual, outdated “rollover” process. If you’re not familiar with a rollover, it’s the industry term for transferring assets from one retirement account to another.
If you are familiar with the rollover process, either through personal experience or hearsay, we suspect you’ll have unpleasant things to say about it. We’ve collected hundreds of comments like the one below describing frustration with a process that frequently involves paper forms, faxes, phone calls, checks in the mail and, believe it or not, notaries.
Amazingly, in spite of the administrative hurdles, we estimate that over $500 billion was rolled over from 401(k)s into individual retirement accounts (IRAs) by almost 5 million people in 2019 alone.
It turns out that there’s no uniform way to roll over a 401(k). Each 401(k) provider (and often each employer’s specific 401(k) plan) has its own combination of steps. Almost none of these are digital. While we’re not ones to cast blame, we believe a mix of complicated incentives, regulatory complexity and fragmented technology budgets have led to the persistence of an outdated process.
It’s not surprising then that so many people do the wrong thing with their 401(k) when changing jobs. For every one person who perseveres and rolls over their assets, another two will either cash out or leave assets behind. The money lost in the process is a large but under appreciated reason why retirement readiness in the US remains at unacceptably low levels.
Today, we’re excited to announce the launch of Capitalize. We’re automating the process of rolling over and consolidating old retirement accounts. Our free platform guides users through an online alternative to the current, disconnected rollover process. Specifically, Capitalize helps users:
- Locate an old 401(k): we digitally locate misplaced 401(k) accounts using the name of a former employer.
- Pick a suitable IRA: we enable users to compare, select and open an IRA at leading financial institutions.
- Initiate rollovers: we handle any of the administrative work required to initiate rollovers on behalf of our users.
At a time when most financial transactions can be done on a smartphone in minutes (if not seconds), we think it’s about time we digitized how we deal with our retirement accounts.
We’re also announcing our first funding round — we’re honored to partner with investors who share our commitment, including Bling Capital, Greycroft Ventures, RRE and Walkabout Ventures.
More about our fundraise and official announcement here.
The friction involved in rolling over old 401(k)s is a symptom of a broader problem: retirement accounts are tied to employers, but we change employers every few years. Put differently, while saving for retirement is a thirty to forty-year exercise, we keep having to do it in three to four-year installments as we move from job to job. Over time, we’re excited to help solve more of the problems associated with the employer-driven nature of the system — which, incidentally, imposes a large financial, legal and administrative burden on those employers as well.
We’re grateful for the trust of our users, our partners, and our investors. We look forward to helping many more Americans save for retirement in years to come.