Saturday, November 01, 2014 05:00am
North Adams, MA now: 45 °   
Send news, tips, press releases and questions to info@iBerkshires.com
The Berkshires online guide to events, news and Berkshire County community information.
SIGN IN | REGISTER NOW   

Home About Archives RSS Feed
The Independent Investor: Get Ready for a Surprise
By Bill Schmick On: 12:00PM / Friday January 25, 2013
Important
0
Interesting
0
Funny
0
Awesome
0
Infuriating
0
Ridiculous
0

Pay special attention to the new disclosure box when you open your year-end, 401(k) statements. That's where you will discover for the first time just how much you are paying for the privilege of investing in those company-sponsored menus of mutual funds. You may be in for a surprise.

More than 70 percent of all 401(k) participants fail to realize that they are paying fees for investing in these tax-deferred retirement plans, according to an AARP study. I have to agree. Over the years, I have met with many prospective clients who had not rolled their 401(k) over to an IRA once they retired. They were under the impression that keeping their savings plan with their company offered a fee-free benefit for life. Nothing could be further from the truth.

The Department of Labor, after many delays and postponements, has finally forced employers, advisers and fund companies to own up to just how much they have been charging you, the employee, for this fringe benefit. Longtime readers may recall my past columns concerning the battle to prevent these fees from becoming public knowledge. Wall Street has lost that battle but probably not the war.

The problem, you see, is that consumers may simply fail to comprehend the long-term impact of these fees on their retirement savings. Let's say you open your statement and discover that you are paying a $100 in expense ratios (fees), per mutual fund each year. That may not mean much when the overall worth of the account is $10,000. What you fail to understand is that over the life of contributing part of your paycheck towards retirement — 20 or 30 years — those fees will add up.

Demos, a policy research firm, recently released a study which revealed that a two-income family, earning average wages, will lose $155,000 or about 30 percent over the life of their savings plan, to these Wall Street fees. That is in line with most independent studies on the subject which indicate you will pay one-third of your retirement savings in fees.

Wall Street defends its fees and has released its own studies that show the average investor pays less than $248 a year in 401(k) fees and no more than $20,000 during the life of the plan. Even if they are right, given that the average 401(k) in this country is around $75,000, that still results in over 26 percent of the plan consumed by fees.

So what can you, the employee, do about it? Your first reaction may be to stop investing in your 401(k). That would be a big mistake. These deferred savings plans have at least two major benefits over an IRA. The employers' "match" whereby your company contributes dollar for dollar up to a certain percentage of your own contribution is free money and worth any contribution you make.

Second, the government allows you, the employee, to contribute much more to a 401(k) than to an IRA. This year employees can contribute $17,500 to their 401(k) plans and, for those over 50 years of age, an additional $5,500 can be contributed. That compares to just $5,500 (or $6,500 for those over 50) in contributions to a traditional IRA.

However, you can cut down on the fees by urging your company representative to select mutual fund families with the lowest fees possible. That's what I do every day for my clients. Better yet, tell the company to abandon mutual funds altogether and invest in exchange traded funds (ETFs) instead. Some 401(k) plans already offer ETFs. These index funds are much cheaper than their high-priced cousins and outperform comparable mutual funds over 80 percent of the time.

Remember, too, that you are managing your own 401(k). That puts the onus on you to decide what investments to make and when to move to the sidelines. That's tough to do when few of us have the professional knowledge to cope with today's markets. Part of my job is to advise my non-retirement clients on how to invest those savings and when. It is also one of the reasons I write these columns. Hopefully, it gives you, the reader, some advice on how to manage your retirement savings.

Finally, if you are retiring soon, my advice is to plan to roll over your 401(k) savings into a traditional IRA. You likely will enjoy a cost savings of as much as 1-2 percent annually. You will also be able to expand your investment choices from the limited menu your company plans offers. If you need advice on how to accomplish that give me a call. It is much easier to do than you might think.

Bottom line: the new fee disclosures is a giant step forward for you the consumer but now that you know how much you are paying, it is up to you to do something about it.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.


0 Comments
     
News Headlines
Berkshire Activists Lobby for Yes on Question 2
The Meat Market Offers Offal Dinner for All Hallow's Eve
'St. Vincent': Absolved of All its Sins
These Mysterious Hills: Pittsfield's Downtown Awash in Ghostly Legends
Pittsfield Debates Control Over School Department Budget
Lenox Calling Special Town Meeting
Community Bids Farewell to MCLA's Grant & Canavan
Adams COA Loads Up 'Buckets of Sand' for Local Senior Citizens
BRPC Concludes Train Station Study, Encourages Towns To Stay Involved
2014 Bazaars & Craft Fairs

Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com Visit www.afewdollarsmore.com for more of Bill’s insights.

 

 

 



Categories:
@theMarket (150)
Independent Investor (202)
Archives:
October 2014 (9)
September 2014 (5)
August 2014 (7)
July 2014 (2)
June 2014 (6)
May 2014 (9)
April 2014 (8)
March 2014 (6)
February 2014 (6)
January 2014 (8)
December 2013 (8)
November 2013 (7)
Tags:
Crisis Federal Reserve Euro Energy Rally Bailout Congress Interest Rates Greece Europe Stocks Stock Market Election Japan Deficit Currency Pullback Jobs Recession Taxes Stimulus Commodities Oil Europe Metals Fiscal Cliff Banks Debt Selloff Markets Housing Fed Economy Debt Ceiling Retirement
Popular Entries:
The Independent Investor: Understanding the Foreclosure Scandal
The Independent Investor: Don't Fight the Fed
The Independent Investor: Does Cash Mean Currencies?
@theMarket: QE II Supports the Markets
@theMarket: Markets Are Going Higher
The Independent Investor: General Motors — Back to the Future
The Independent Investor: How Will Wall Street II Play on Main Street?
The Independent Investor: Will the Municipal Bond Massacre Continue?
@theMarket: Economy Sputters, Stocks Stutter
The Independent Investor: Why Are Interest Rates Rising?
Recent Entries:
The Independent Investor: Workers Get to Save More in 2015
@theMarket: All Clear
The Independent Investor: The Elephant in the Room
@theMarket: So far, So Good
The Independent Investor: OPEC's Oil Ploy
@theMarket: Are We There Yet?
The Independent Investor: Why Is This Recovery Different?
@theMarket: October Starts Off on High Note
The Independent Investor: Money & Divorce — What You Should Know
@theMarket: Wash, Rinse and Repeat


View All
Soccer: McCann Tech vs...
McCann Tech senior Austin Worth scores the game-winner in a...
Grant & Canavan Farewell...
MCLA President Mary Grant and her husband, James Canavan,...
Girls Soccer: Franklin Tech...
McCann Tech girls celebrate 3-0 semi-finals win advance to...
Girls Soccer: Pittsfield vs...
The Pittsfield and Wahconah girls soccer teams on Tuesday...
Soccer: Putnam vs McCann Tech
The McCann Tech boys soccer team closed out the home...
Soccer: Hoosac Valley vs...
MCLA Boo Bash 2014
The annual MCLA Boo Bash hosted by Berkshire Towers...
Girls Soccer: Commerce vs...
McCann girls soccer team Senior Day game on Monday...
Adams Lions Club Halloween...
Children followed the Hoosac Valley Marching Band down Park...
Girls Soccer : Mount Greylock...
Flynn scored her second goal of the game to stop a Hoosac...
Football: Mount Greylock vs...
The undefeated Wahconah High School football team shutout...
Football: Lee vs Monument
Saturday afternoon football Lee wins over Monument Mountain...
The Massachusetts Junior...
The Massachusetts Junior Classics League held its fall...
Football: Hoosac Valley vs...
Hoosac Valley overpowers Drury 63-12, Saturday afternoon.
Pittsfield Halloween Parade...
Monsters and zombies, princesses and Jedi ushered in the...
Soccer: Wahconah vs Lenox
Collin Parrott scored three times on Tuesday to lead the...
Soccer: McCann Tech vs...
McCann Tech senior Austin Worth scores the game-winner in a...
Grant & Canavan Farewell...
MCLA President Mary Grant and her husband, James Canavan,...
Girls Soccer: Franklin Tech...
McCann Tech girls celebrate 3-0 semi-finals win advance to...
Girls Soccer: Pittsfield vs...
The Pittsfield and Wahconah girls soccer teams on Tuesday...
Soccer: Putnam vs McCann Tech
The McCann Tech boys soccer team closed out the home...
| Home | A & E | Business | Community News | Dining | Real Estate | Schools | Sports & Outdoors | Berkshires Weather | Weddings
Advertise | Recommend This Page | Help Contact Us | Privacy Policy| User Agreement
iBerkshires.com is owned and operated by: Boxcar Media 102 Main Street, North Adams, MA 01247 -- T. 413-663-3384 F.413-664-4251
© 2000 Boxcar Media LLC - All rights reserved