Wednesday, May 1, 2013

Frontline exposes what we always suspected, Our 401(k) management fees are crippling us.

Frontline's recent broadcast on public television called "The Retirement Gamble" has created a firestorm of conversation and concern for people in the financial planning industry, retirement fund managers and those of us who advise and comment on the topic.
Key elements of Frontline's investigative look at how the 401k business works:
- Retirement money management is big business.
- Most retirees are unaware of the fees being taken out of their nest eggs that over time will cost them tens of thousands of dollars!
- Most companies provide their employees with limited choices for where their retirement money can be invested and despite recent congressional action to bring more transparency to the business, the veil shrouding fund fee disclosure has not been lifted. The depressing news is that working Americans are being short-changed when it comes to 401(k) retirement management plans.
According to Frontline research, the average wage earner stands to lose $109,407 over the lifetime of retirement investing in fees and commissions that reduce the reinvestment factor in their savings programs.
Anyone who has spent time planning for retirement knows that to live comfortably without running out of money you will need a $1 million nest egg. Few of us will achieve that goal, but certainly we're not getting any help from the 401k industrial complex. What can you do? Here are suggestions from experts interviewed by Frontline:
1. Make friends with the people where you work who are in charge of managing the company 401k plan. Ask them about fund choices and fund fees. Make this a mutually beneficial conversation. What fund manager is the company's plan using? Ask for full disclosure of management fees and trading fees. If you work at a larger company, go to to see fee rates.
2. Save as much as possible up to the 15 percent maximum limit in your 401k from day one. If you're over 50, save even more in your 401k. Your minimum goal should be $1 million in your retirement nest egg by age 65.
3. Don't invest in your own company's stock. You're taking enough risk just by working there. Diversify your savings in low-cost index funds with expense ratios of 1 percent or less. What's an index fund? Index funds are a collective investment vehicle (fund) that aims to replicated the movement of an index of specific stocks or a set group of investments. For example, S&P 500 Index funds invest in the 500 leading publicly traded companies in the U.S. stock market. If the S&P 500 goes up, your S&P Index Fund will go up. No one is "managing" the fund and collecting a big fee for doing it. Get it!
4. If you leave a job don't be influenced by advisers who will push you into their own typically more expensive proprietary financial products. Either leave the money where it is or roll it into your new employer's 401k plan. You might also consider a rollover IRA in a self-managed account at Fidelity, Vanguard, Charles Schwab where you are in charge and can monitor expense ratios on the funds you invest in at lower cost.
After reviewing the Frontline broadcast, Robert Brokamp of the Motley Fool wrote a piece called "The Tyranny of the 401(k) Industrial Complex." Brokamp summarizes by reminding us all that planning for retirement IS up to each one of us. Click here for the Motley Fool retirement calculator.
"However you manage your finances, ensure yourself that it's doing more for your retirement than someone else's."
If the Frontline expose isn't enough, read Helaine Olen's book, "Pound Foolish," an expose of the financial services industry. In it Olen describes the business as a "world of illusionists, conjurers, and snake-oil salesmen of every stripe."
Again, who cares about your welfare, your retirement security and your money, more than you do? It's up to us all to get on top of our retirement planning, ask tough questions of our 401(k) fund managers and make sure we are not paying for someone else's retirement.

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