PBS Frontline : The Retirement Gamble, sorta Must See (6 Viewers)

[NewlyRetired]

Withdrawing 4 % of the nest egg per year should ensure the $$$ lasts a long time. People near retirement should be lowering their exposure to equities, to better weather those huge dips when they happen.

Many retirees now consider the old 4% rule to be slightly aggressive as healthy people are living longer and longer now. 3.5% is a more conservative number to use.We are running at ~2.25% right now but expect that to go up in later years a bit.

aren't you most likely generating at least 2.25% on your money right now (i hope) so in reality you're not drawing down at all, just living off what the nest egg generates?

I think you are forgetting an important point, inflation...

The ROW (rate of withdrawal) calculations factor in inflation when you determine how much you want to live off of (be it 4% or some other lower number). And it is just a rule of thumb as things will change for you over a 30-40 year period that no rule of thumb can predict so you need to be flexible.

 

[Binky The Doormat]

I don't know about others, but we just plan on anything we get from retirement to be a bonus (401Ks, pensions, etc.). And maybe that's enough but I'm not going to pin my future on it. We'll make our own money.

??? So you are going to work until you drop?

He is a landlord. That will be an excellent source of income for his family. He already stated he hopes to retire in 5 years.

got it, excellent move

 

[wilked]

Withdrawing 4 % of the nest egg per year should ensure the $$$ lasts a long time. People near retirement should be lowering their exposure to equities, to better weather those huge dips when they happen.

Many retirees now consider the old 4% rule to be slightly aggressive as healthy people are living longer and longer now. 3.5% is a more conservative number to use.We are running at ~2.25% right now but expect that to go up in later years a bit.

aren't you most likely generating at least 2.25% on your money right now (i hope) so in reality you're not drawing down at all, just living off what the nest egg generates?

I think you are forgetting an important point, inflation...

The ROW (rate of withdrawal) calculations factor in inflation when you determine how much you want to live off of (be it 4% or some other lower number). And it is just a rule of thumb as things will change for you over a 30-40 year period that no rule of thumb can predict so you need to be flexible.

I get that... my comment was to Dentist, who implied that if your nest egg is returning > what you are withdrawing you are all set. Which is very wrong

 

[NewlyRetired]

Withdrawing 4 % of the nest egg per year should ensure the $$$ lasts a long time. People near retirement should be lowering their exposure to equities, to better weather those huge dips when they happen.

Many retirees now consider the old 4% rule to be slightly aggressive as healthy people are living longer and longer now. 3.5% is a more conservative number to use.We are running at ~2.25% right now but expect that to go up in later years a bit.

aren't you most likely generating at least 2.25% on your money right now (i hope) so in reality you're not drawing down at all, just living off what the nest egg generates?

I think you are forgetting an important point, inflation...

The ROW (rate of withdrawal) calculations factor in inflation when you determine how much you want to live off of (be it 4% or some other lower number). And it is just a rule of thumb as things will change for you over a 30-40 year period that no rule of thumb can predict so you need to be flexible.

I get that... my comment was to Dentist, who implied that if your nest egg is returning > what you are withdrawing you are all set. Which is very wrong

I see what you mean now. It is hard to say whether it is wrong or right with out a crystal ball. Hopefully your investments in retirement can keep pace with inflation, which allows your ROW to stay steady, in theory but in reality some years are up and some years are down.

 

[Sand]

I was going over my wife's retirement plan. She works at a school with average income of 60k. With the min required to match 4%+4% match an 8% savings rate for 30 years won't even sniff enough money to retire on.

Then you have 50% of people that contribute 0 into any plan at all.

You want to talk about a financial crisis? This is it. You will have people that have made 100k-200k at the poverty level 10 years into retirement.

That is their own damn fault.

Whoa - is it those people's fault that scrimped and saved, invested wisely/conservatively, retire - and then the market goes to sheet again. What is your take on that situation?

That they should have constructed their portfolio with properly uncorrelated or negatively correlated asset classes while ensuring that the asset class mix exhibits a downside variance that is appropriate for someone in the drawdown phase of retirement.

 

[Binky The Doormat]

http://www.firecalc.com/

I think site has been mentioned before. One of the best retirement calculators out there. Also has an excellent spending model. I have been planning for retirement since my late 20's and wish I could have started earlier. We have gone the cfp route, out of it, and are now back again, and disappointed again - though I was able to get some good muni-bonds through them though I likely wouldn't have gotten on my own.

My issue now is that I may well be looking at getting caught up in a sizable layoff - at 55 yrs of age. I would get a non-inflation adjusted pension that isn't a bad amount and our out of 401K savings with a 4% withdraw can still get us enough to be ok with a few cut backs. Just not the way I wanted to go out - and it puts us back at the mercy of the market.

 

[NewlyRetired]

http://www.firecalc.com/

I think site has been mentioned before. One of the best retirement calculators out there. Also has an excellent spending model. I have been planning for retirement since my late 20's and wish I could have started earlier. We have gone the cfp route, out of it, and are now back again, and disappointed again - though I was able to get some good muni-bonds through them though I likely wouldn't have gotten on my own.

.

Firecalc is fantastic. I can't tell you how many times I used that tool when planning my retirement. Between that tool and the fantastic people at http://www.early-retirement.org/forums/ you can get a lot of info on early retirement. I picked those peoples brains for probably 7 years before getting to FIRE.

 

[Doctor Detroit]

My retirement plans involve smoking a pack a day and drinking like a Viking...hopefully won't have to worry about anything past 70.

I like the cut of your jib.

 

[Doctor Detroit]

My retirement plans involve smoking a pack a day and drinking like a Viking...hopefully won't have to worry about anything past 70.

I like the cut of your jib.

YOHO let's split a bottle of rum.

Why not just get two bottles and a fat chick?

 

[Mr. Pickles]

There's nothing more nauseating than people weighing in on their retirement savings plans and dismissing everyone else as screwed if they aren't doing something similar.

 

[southbound]

So my employer matches up to 6%. I am 26 and am currently putting the max 25% of my pay into my company's 401K. Should I be only putting the 6% to match and opening an IRA with the remainder?

 

[Random]

http://www.firecalc.com/

I think site has been mentioned before. One of the best retirement calculators out there. Also has an excellent spending model. I have been planning for retirement since my late 20's and wish I could have started earlier. We have gone the cfp route, out of it, and are now back again, and disappointed again - though I was able to get some good muni-bonds through them though I likely wouldn't have gotten on my own.

.

Firecalc is fantastic. I can't tell you how many times I used that tool when planning my retirement. Between that tool and the fantastic people at http://www.early-retirement.org/forums/ you can get a lot of info on early retirement. I picked those peoples brains for probably 7 years before getting to FIRE.

Do any of those calculators factor in landlording? I just cant seem to find anything that helps me analyze our situation.

 

[Rick James]

white star

 

[Dentist]

There's nothing more nauseating than people weighing in on their retirement savings plans and dismissing everyone else as screwed if they aren't doing something similar.

there goes my entire schtick, thanks guy

 

[Dentist]

Withdrawing 4 % of the nest egg per year should ensure the $$$ lasts a long time. People near retirement should be lowering their exposure to equities, to better weather those huge dips when they happen.

Many retirees now consider the old 4% rule to be slightly aggressive as healthy people are living longer and longer now. 3.5% is a more conservative number to use.We are running at ~2.25% right now but expect that to go up in later years a bit.

aren't you most likely generating at least 2.25% on your money right now (i hope) so in reality you're not drawing down at all, just living off what the nest egg generates?

I think you are forgetting an important point, inflation...

The ROW (rate of withdrawal) calculations factor in inflation when you determine how much you want to live off of (be it 4% or some other lower number). And it is just a rule of thumb as things will change for you over a 30-40 year period that no rule of thumb can predict so you need to be flexible.

I get that... my comment was to Dentist, who implied that if your nest egg is returning > what you are withdrawing you are all set. Which is very wrong

i wasn't trying to suggest he was set.

just that hopefully if he's only drawing 2.25% that his portfolio is big enough for him to draw that, and have returns on top of that that out-pace inflation.

your statement is correct

 

[Random]

Withdrawing 4 % of the nest egg per year should ensure the $$$ lasts a long time. People near retirement should be lowering their exposure to equities, to better weather those huge dips when they happen.

Many retirees now consider the old 4% rule to be slightly aggressive as healthy people are living longer and longer now. 3.5% is a more conservative number to use.We are running at ~2.25% right now but expect that to go up in later years a bit.

aren't you most likely generating at least 2.25% on your money right now (i hope) so in reality you're not drawing down at all, just living off what the nest egg generates?

I think you are forgetting an important point, inflation...

The ROW (rate of withdrawal) calculations factor in inflation when you determine how much you want to live off of (be it 4% or some other lower number). And it is just a rule of thumb as things will change for you over a 30-40 year period that no rule of thumb can predict so you need to be flexible.

I get that... my comment was to Dentist, who implied that if your nest egg is returning > what you are withdrawing you are all set. Which is very wrong

i wasn't trying to suggest he was set.

just that hopefully if he's only drawing 2.25% that his portfolio is big enough for him to draw that, and have returns on top of that that out-pace inflation.

your statement is correct

I disagree. I think if you withdraw less than you are earning, you are very set.

 

[Dentist]

Withdrawing 4 % of the nest egg per year should ensure the $$$ lasts a long time. People near retirement should be lowering their exposure to equities, to better weather those huge dips when they happen.

Many retirees now consider the old 4% rule to be slightly aggressive as healthy people are living longer and longer now. 3.5% is a more conservative number to use.We are running at ~2.25% right now but expect that to go up in later years a bit.

aren't you most likely generating at least 2.25% on your money right now (i hope) so in reality you're not drawing down at all, just living off what the nest egg generates?

I think you are forgetting an important point, inflation...

The ROW (rate of withdrawal) calculations factor in inflation when you determine how much you want to live off of (be it 4% or some other lower number). And it is just a rule of thumb as things will change for you over a 30-40 year period that no rule of thumb can predict so you need to be flexible.

I get that... my comment was to Dentist, who implied that if your nest egg is returning > what you are withdrawing you are all set. Which is very wrong

i wasn't trying to suggest he was set.

just that hopefully if he's only drawing 2.25% that his portfolio is big enough for him to draw that, and have returns on top of that that out-pace inflation.

your statement is correct

I disagree. I think if you withdraw less than you are earning, you are very set.

i think his point was that since he is still relatively young, that if his portfolio was returning say.. 4%, and he withdraws 2.25 percent, that the remaining 1.75% may not be out-pacing inflation, and thus his money's value could erode enough over time that it would become inadequate if he lived longer than expected.

I understand that concept, it simply wasn't elucidated in my posting very well and was called out, which I can accept.

 

[Sand]

I was going over my wife's retirement plan. She works at a school with average income of 60k. With the min required to match 4%+4% match an 8% savings rate for 30 years won't even sniff enough money to retire on.

Then you have 50% of people that contribute 0 into any plan at all.

You want to talk about a financial crisis? This is it. You will have people that have made 100k-200k at the poverty level 10 years into retirement.

That is their own damn fault.

Whoa - is it those people's fault that scrimped and saved, invested wisely/conservatively, retire - and then the market goes to sheet again. What is your take on that situation?

That they should have constructed their portfolio with properly uncorrelated or negatively correlated asset classes while ensuring that the asset class mix exhibits a downside variance that is appropriate for someone in the drawdown phase of retirement.

So you're saying I should drink more?

Yep - that works too.

 

[wilked]

All I am saying is that real return is all that matters, not nominal.

 

[NewlyRetired]

http://www.firecalc.com/

I think site has been mentioned before. One of the best retirement calculators out there. Also has an excellent spending model. I have been planning for retirement since my late 20's and wish I could have started earlier. We have gone the cfp route, out of it, and are now back again, and disappointed again - though I was able to get some good muni-bonds through them though I likely wouldn't have gotten on my own.

.

Firecalc is fantastic. I can't tell you how many times I used that tool when planning my retirement. Between that tool and the fantastic people at http://www.early-retirement.org/forums/ you can get a lot of info on early retirement. I picked those peoples brains for probably 7 years before getting to FIRE.

Do any of those calculators factor in landlording? I just cant seem to find anything that helps me analyze our situation.

People who have rental income in retirement use the pension section of Firecalc to cover that yearly income.

 

[dino259]

I currently contribute 5% to my 401k, and company matches 4% on that. They match the full 3%, then 1/2 a % on the next 2. If that makes sense. From my understanding, and I could be completely wrong, but it's how it was described to me, is that they started matching from the day I began contributing, but I only keep it if I stay with the company for 3 years.

(On a side note, what happens to the $ if I leave after 2 years? I know I keep what I put in, but what about what they matched? Back into a pool to match on others?)

We also are putting $50 from each check, which works out to be 1300, into a savings account to pay for kids school. Which probably isn't enough to cover it all, but coming from someone who had to pay entirely for school myself, 24k would have been a huge help. Any better options for this? Or just keep the direct deposit going into a savings account?

Considering I'm 27 now, just continue putting into the 401k? Is there another option I should be looking into? Should I up the % even though the company isn't matching? Any good and insightful reads on this subject would be greatly appreciated.

My priority list would be as follows:

1. You must keep contributing that 5% to 410(k) to get the free money from your employer. Ask HR what happens if you leave <3 years.

2. Fund Roth IRA as much as you can instead of putting into kids school savings account (maximum is $5.5k for individual in 2013). You can pull the principle without penalty anytime from a Roth, so it is a savings account, but with a huge tax break on earnings (i.e., you can pull your principle contributions for college tuiton expenses, and let your earnings stay in the Roth and continue to grow). As your income rises, you will be costed out of being able to fund the Roth IRA, so now is a good time. 529 plans and other savings vehicles have some limitations that I didn't like. Fidelity and Vanguard are both good options (I went with Fidelity). Takes 15 minutes online to set it up.

3. If you still have extra, fund the remainder of the 401(k) up to the max ($17.5k for individual).

4. If you still have extra, then would be the time to look into 529 and other college savings plans. My personal thoughts are towards real estate investment over a 529 plan. Last time I checked, they aren't making more land.

All the savings plans in the world don't help unless your investment choices are appropriate for your situation. Don't just fund these plans and forget about them, learn how to actively manage your investments!

I agree with this.

 

[Politician Spock]

So my employer matches up to 6%. I am 26 and am currently putting the max 25% of my pay into my company's 401K. Should I be only putting the 6% to match and opening an IRA with the remainder?

1) Put the 6% in to your 401K to get the employer match. This is an immediate 100% return on your investment.

2) Throw as much post tax money as you can into a Roth IRA.

3) If you max out the legal annual limit that you can contribute to a Roth, then you should consider putting more into the 401K, but only if the 401K is a good plan with good investment options. If it is, try to max out your contributions to it. If it's not a good plan, you might be better off passing on the tax benefits of the 401K and just do some post tax investing.

Of course, if you have bad debt, option 3, and perhaps even option 2, should wait until you've paid off that bad debt.

 

[mquinnjr]

Just re-balanced my 401k into 20% gov't securities/insurance contracts @ 0.16% expense ratio, 20% company stock @ 0.07% expense ratio, and 60% in our Russel 300 index @ 0.07% expense ratio (all proprietary funds). I was getting great returns, but paying comparatively 0.50 - 0.70% in other funds that haven't been outperforming the above by a whole lot. Going to do the same with the Roth IRA and cash investments this weekend.

This thread has inspired me, thanks so much for starting this thread, guys

 

[gruecd]

Planning isn't just about Fees--it's about Service

 

[wilked]

Just re-balanced my 401k into 20% gov't securities/insurance contracts @ 0.16% expense ratio, 20% company stock @ 0.07% expense ratio, and 60% in our Russel 300 index @ 0.07% expense ratio (all proprietary funds). I was getting great returns, but paying comparatively 0.50 - 0.70% in other funds that haven't been outperforming the above by a whole lot. Going to do the same with the Roth IRA and cash investments this weekend.

This thread has inspired me, thanks so much for starting this thread, guys

Why are you invested in your company stock?

 

[wilked]

Planning isn't just about Fees--it's about Service

lol...sounds like advisors are feeling threatened.

 

[mquinnjr]

Just re-balanced my 401k into 20% gov't securities/insurance contracts @ 0.16% expense ratio, 20% company stock @ 0.07% expense ratio, and 60% in our Russel 300 index @ 0.07% expense ratio (all proprietary funds). I was getting great returns, but paying comparatively 0.50 - 0.70% in other funds that haven't been outperforming the above by a whole lot. Going to do the same with the Roth IRA and cash investments this weekend.

This thread has inspired me, thanks so much for starting this thread, guys

Why are you invested in your company stock?

I work at JNJ in accounting, used to do internal auditing. I'm quite comfortable with it.

 

[Dentist]

Planning isn't just about Fees--it's about Service

This is a perfectly acceptable rebuttal in my opinion.

Things i agree with in this article:

1) without the 401k system, many people wouldn't save at all - true. It's unbelievable that without automatic enrollment most people wouldn't bother setting it up.

2) Fees aren't the only thing. The average person is so investment clueless and completely unwilling to listen to anything financial that without things being automatically set up they would fail even worse than they already do.

3) the 401k/403b system won't even allow most corps to have an open brokerage platform for the educated investor because they have to guard people against themselves... by ERISA laws. it's crazy.

there are a lot of people better off paying some exorbitant fees then trying to navigate things on their own.

The financial industry has tried so many things to keep people on track.. target funds, risk level funds, etc.

But it's mind-blowing how uninterested/dumb people are.

Just amongst employees in the American Dental Association's plan.. nearly 50% of people either put nearly 100% of their money into the default "moderate" investment due to not wanting to make any type of choice (paralyzed by fear or inability to make a decision) or 100% cash in a money market fund earning 1% due to an irrational thought that the stock market is just a casino and inability to make any decision.

Even in my own office I've got intelligent 40-50 y.o. women in 100% cash. They know i watch the market, but I refuse to give advice due to the ramifications. I've printed them off basic strategy guides, but that inspires no action whatsoever.

It is beyond unreal to me how people will spend hours and hours in their job, hours and hours clipping $0.50 coupons or shopping for shoes to save $5, or waiting in a 2 hour line for a FREE ice cream on Free ice cream day at the shop next to my office, but won't read one book on personal finance and execute the advice.. because that's too hard/boring.

 

[gruecd]

Planning isn't just about Fees--it's about Service

lol...sounds like advisors are feeling threatened.

Studies show that savings rates are significantly higher in plans where advisors are attached. Advisors need to get paid. Unless the plan sponsor wants to pay them directly (and most don't), the fees are added into fund expenses and are required to be disclosed as such.

Also, most retirement-focused advisors get paid the same regardless of the funds being used. The advisor gets paid his 0.25% regardless of whether the plan uses Vanguard index funds or actively-managed funds. The mechanism by which they get paid might be different, but generally speaking the advisor's compensation is independent of the fund line-up.

What I'm saying is that the majority of people have no idea how this all works and are therefore better served keeping their opinions to themselves, lest they make themselves look stupid.

 

[gruecd]

Planning isn't just about Fees--it's about Service

This is a perfectly acceptable rebuttal in my opinion.

Things i agree with in this article:

1) without the 401k system, many people wouldn't save at all - true. It's unbelievable that without automatic enrollment most people wouldn't bother setting it up.

2) Fees aren't the only thing. The average person is so investment clueless and completely unwilling to listen to anything financial that without things being automatically set up they would fail even worse than they already do.

3) the 401k/403b system won't even allow most corps to have an open brokerage platform for the educated investor because they have to guard people against themselves... by ERISA laws. it's crazy.

there are a lot of people better off paying some exorbitant fees then trying to navigate things on their own.

The financial industry has tried so many things to keep people on track.. target funds, risk level funds, etc.

But it's mind-blowing how uninterested/dumb people are.

Just amongst employees in the American Dental Association's plan.. nearly 50% of people either put nearly 100% of their money into the default "moderate" investment due to not wanting to make any type of choice (paralyzed by fear or inability to make a decision) or 100% cash in a money market fund earning 1% due to an irrational thought that the stock market is just a casino and inability to make any decision.

Even in my own office I've got intelligent 40-50 y.o. women in 100% cash. They know i watch the market, but I refuse to give advice due to the ramifications. I've printed them off basic strategy guides, but that inspires no action whatsoever.

It is beyond unreal to me how people will spend hours and hours in their job, hours and hours clipping $0.50 coupons or shopping for shoes to save $5, or waiting in a 2 hour line for a FREE ice cream on Free ice cream day at the shop next to my office, but won't read one book on personal finance and execute the advice.. because that's too hard/boring.

Spot on, Dentist.

 

[Bull Dozier]

Just re-balanced my 401k into 20% gov't securities/insurance contracts @ 0.16% expense ratio, 20% company stock @ 0.07% expense ratio, and 60% in our Russel 300 index @ 0.07% expense ratio (all proprietary funds). I was getting great returns, but paying comparatively 0.50 - 0.70% in other funds that haven't been outperforming the above by a whole lot. Going to do the same with the Roth IRA and cash investments this weekend.

This thread has inspired me, thanks so much for starting this thread, guys

Why are you invested in your company stock?

I would think most people working for large companies feel their own company stock is a safe investment. I know I have a lot of my 401k in my own company stock. 20% is probably more than most advisors would suggest, unless there is a lot of retirement savings elsewhere so that 20% here is just 5% of overall savings. But, I would think that many people generally believe in the company they work for.

Maybe you meant to ask why he was so heavily invested in his company stock, but why he is invested at all seems like a silly question.

 

[mquinnjr]

Just re-balanced my 401k into 20% gov't securities/insurance contracts @ 0.16% expense ratio, 20% company stock @ 0.07% expense ratio, and 60% in our Russel 300 index @ 0.07% expense ratio (all proprietary funds). I was getting great returns, but paying comparatively 0.50 - 0.70% in other funds that haven't been outperforming the above by a whole lot. Going to do the same with the Roth IRA and cash investments this weekend.

This thread has inspired me, thanks so much for starting this thread, guys

Why are you invested in your company stock?

I would think most people working for large companies feel their own company stock is a safe investment. I know I have a lot of my 401k in my own company stock. 20% is probably more than most advisors would suggest, unless there is a lot of retirement savings elsewhere so that 20% here is just 5% of overall savings. But, I would think that many people generally believe in the company they work for.

Maybe you meant to ask why he was so heavily invested in his company stock, but why he is invested at all seems like a silly question.

I know the stock inside and out, and monitor it a few times a day. I'd sell immediately into the index if things were amiss. Can't touch it during the earnings release blackout windows, but otherwise it's well monitored for me.

 

[wilked]

Planning isn't just about Fees--it's about Service

lol...sounds like advisors are feeling threatened.

Studies show that savings rates are significantly higher in plans where advisors are attached. Advisors need to get paid. Unless the plan sponsor wants to pay them directly (and most don't), the fees are added into fund expenses and are required to be disclosed as such.

Also, most retirement-focused advisors get paid the same regardless of the funds being used. The advisor gets paid his 0.25% regardless of whether the plan uses Vanguard index funds or actively-managed funds. The mechanism by which they get paid might be different, but generally speaking the advisor's compensation is independent of the fund line-up.

What I'm saying is that the majority of people have no idea how this all works and are therefore better served keeping their opinions to themselves, lest they make themselves look stupid.

I can say with confidence that at least 80% of options within 401Ks are bad choices. Options such as these are very typical

Short-Term Fixed Income Principal Stable Value Fund - 0.86%Fixed Income American Century Diversified Bond A Fund - 0.86% Bond Market Index Separate Account - 0.43% Core Plus Bond I Separate Account - 0.73% Balanced/Asset Allocation Principal LifeTime Strategic Income Separate Account - 0.78% Principal LifeTime 2050 Separate Account - 0.95% Large U.S. EquityJanus Aspen Forty Institutional Fund - 0.71% MFS Value R2 Fund - 1.19% LargeCap S&P 500 Index Separate Account - 0.31% LargeCap Growth I Separate Account - 0.79% LargeCap Blend II Separate Account - 0.92% Small/Mid U.S. Equity SmallCap Value II Separate Account - 1.27% MidCap Value I Separate Account 1.16% MidCap S&P 400 Index Separate Account - 0.31% SmallCap S&P 600 Index Separate Account - 0.31% Prudential Jennison Small Company A Fund - 1.16% T. Rowe Price Mid-Cap Growth Adv Fund - 1.05% International Equity American Funds EuroPacific Growth R3 Fund - 1.14% International Equity Index Separate Account - 0.55% International SmallCap Separate Account - 1.46% OtherVanguard Health Care Fund - 0.35% I can scan this list in about 15 secs and cross off all but 5 or so, the rest are overpriced. I don't need to look up Morningstar's ratings (useless) or past returns to know this.

 

[gruecd]

wilked, on 26 Apr 2013 - 09:46, said:I can scan this list in about 15 secs and cross off all but 5 or so, the rest are overpriced. I don't need to look up Morningstar's ratings (useless) or past returns to know this.

Disagree, and I do this for a living. First of all, you have to look at net returns. If fees are above average, but the fund has consistently outperformed its peer group (net of fees), then so what? It's like saying you should always buy a Saturn instead of a Lexus simply because it's cheaper, all other factors/considerations be damned.Also, you don't know if those fund expenses include a revenue sharing allowance to pay an advisor, third-party administrator, recordkeeper, etc. Most do. In the absence of revenue sharing, either you'd be charged an explicit asset-based fee that would be assessed against your account, or else you probably wouldn't have a 401(k) plan at all, because the vast majority of plan sponsors aren't going to write a check to pay all the various service providers directly.Trust me. I know what I'm talking about.

 

[culdeus]

Fidelity just allowed ishares to be bought commission free in my plan. Will be converting my stuff to all ishares. boom.

 

[wazoo11]

Kinda feel not sorry for that teacher who didn't understand how to manage her 401k retirement plan.

That's the kind of people these toolbags are looking for to exploit.

 

[KCitons]

wilked, on 26 Apr 2013 - 09:46, said:I can scan this list in about 15 secs and cross off all but 5 or so, the rest are overpriced. I don't need to look up Morningstar's ratings (useless) or past returns to know this.

Disagree, and I do this for a living. First of all, you have to look at net returns. If fees are above average, but the fund has consistently outperformed its peer group (net of fees), then so what? It's like saying you should always buy a Saturn instead of a Lexus simply because it's cheaper, all other factors/considerations be damned.Also, you don't know if those fund expenses include a revenue sharing allowance to pay an advisor, third-party administrator, recordkeeper, etc. Most do. In the absence of revenue sharing, either you'd be charged an explicit asset-based fee that would be assessed against your account, or else you probably wouldn't have a 401(k) plan at all, because the vast majority of plan sponsors aren't going to write a check to pay all the various service providers directly.Trust me. I know what I'm talking about.

Not trying to disrespect you or your job. But, it's stuff like this that either keeps people from investing or feel the need to use a financial adviser. The first paragraph I understood. The second paragraph looked like this:

Also, you don't know if those blah, blah, blah, blahbity, blah, blah, blah, blhaahaha, blaha, blahooey, blah blah. ....................................................................................... directly.

Does everything have to be so difficult to understand. I honestly think people come up with long names and explanations for things that could be done much easier. Kinda like going to the Dr. He wants to give you the Latin name and the medical condition just to explain that you have a common cold.

The Saturn/Lexis comparison is more my speed.

 

[wilked]

wilked, on 26 Apr 2013 - 09:46, said:

I can scan this list in about 15 secs and cross off all but 5 or so, the rest are overpriced. I don't need to look up Morningstar's ratings (useless) or past returns to know this.

Disagree, and I do this for a living. First of all, you have to look at net returns. If fees are above average, but the fund has consistently outperformed its peer group (net of fees), then so what? It's like saying you should always buy a Saturn instead of a Lexus simply because it's cheaper, all other factors/considerations be damned.Also, you don't know if those fund expenses include a revenue sharing allowance to pay an advisor, third-party administrator, recordkeeper, etc. Most do. In the absence of revenue sharing, either you'd be charged an explicit asset-based fee that would be assessed against your account, or else you probably wouldn't have a 401(k) plan at all, because the vast majority of plan sponsors aren't going to write a check to pay all the various service providers directly.

Trust me. I know what I'm talking about.

It sounds like this is rounding into an actively managed funds vs index funds question.

There are so many studies showing that index funds outperform active funds, but I like this one. Rick Ferri states it well, "The evidence in favor of all index funds, all of the time, is irrefutable, overwhelming and important to all investors."

http://www.forbes.com/sites/rickferri/2012/08/20/index-fund-portfolios-reign-superior/

With some very minor exceptions (Berkshire, Wellington come to mind) the investor is rewarded by sticking to Index funds and keeping what he/she can control (ie fees) low.

 

[Dentist]

Kinda feel not sorry for that teacher who didn't understand how to manage her 401k retirement plan.

That's the kind of people these toolbags are looking for to exploit.

teachers in general get really screwed.

my wife got into a plan with AXA equitable before we got married.

the fees are outrageous (and that's with no advisor)

1.2% mortality expense, and then even the INDEX funds carry fees around 0.6-0.8%

it's outrageous.

But to make it even worse.. while i got her contributing to a new company that has total fees in the 0.6-0.8% range..... the 40K she has with AXA i can't move without paying a 5-6% forfeit fee until the money has been there 5 years... gross.

 

[Dentist]

wilked, on 26 Apr 2013 - 09:46, said:

I can scan this list in about 15 secs and cross off all but 5 or so, the rest are overpriced. I don't need to look up Morningstar's ratings (useless) or past returns to know this.

Disagree, and I do this for a living. First of all, you have to look at net returns. If fees are above average, but the fund has consistently outperformed its peer group (net of fees), then so what? It's like saying you should always buy a Saturn instead of a Lexus simply because it's cheaper, all other factors/considerations be damned.Also, you don't know if those fund expenses include a revenue sharing allowance to pay an advisor, third-party administrator, recordkeeper, etc. Most do. In the absence of revenue sharing, either you'd be charged an explicit asset-based fee that would be assessed against your account, or else you probably wouldn't have a 401(k) plan at all, because the vast majority of plan sponsors aren't going to write a check to pay all the various service providers directly.

Trust me. I know what I'm talking about.

It sounds like this is rounding into an actively managed funds vs index funds question.

There are so many studies showing that index funds outperform active funds, but I like this one. Rick Ferri states it well, "The evidence in favor of all index funds, all of the time, is irrefutable, overwhelming and important to all investors."

http://www.forbes.com/sites/rickferri/2012/08/20/index-fund-portfolios-reign-superior/

With some very minor exceptions (Berkshire, Wellington come to mind) the investor is rewarded by sticking to Index funds and keeping what he/she can control (ie fees) low.

no one is debating managed funds vs. passive funds.

if you watched the show, you saw the numbers, it's irrefutable.

But I think what this poster is saying is that even in picking amongst index funds, people either won't do it, or would pick the wrong ones given their overall stupidity towards all things finance.

What would truly be worse... someone using an adviser and paying 1-1.5% which is not good, but at least they might direct them to a accepted strategy.

or someone picking an index fund based on something insane like... hmm.. foreign funds have done great lately... i'm going 100% foreign index fund! so their expense ratio is like 0.4%, but it's a completely unacceptable strategy!

 

[wilked]

Maybe I missed grue's point. Within the list I provided, comparing the relative expense ratios is definitely apples to apples. Scanning, I immediately throw away any fund charging over 1% in fees - that is ludicrous. From there you can select the lowest cost broad-range bond fund, lowest fee Total Market fund (or grab one large cap, one mid cap, and one small cap), continue on with an international fund, and you are done.

 

[Dentist]

wilked, on 26 Apr 2013 - 09:46, said:I can scan this list in about 15 secs and cross off all but 5 or so, the rest are overpriced. I don't need to look up Morningstar's ratings (useless) or past returns to know this.

Disagree, and I do this for a living. First of all, you have to look at net returns. If fees are above average, but the fund has consistently outperformed its peer group (net of fees), then so what? It's like saying you should always buy a Saturn instead of a Lexus simply because it's cheaper, all other factors/considerations be damned.Also, you don't know if those fund expenses include a revenue sharing allowance to pay an advisor, third-party administrator, recordkeeper, etc. Most do. In the absence of revenue sharing, either you'd be charged an explicit asset-based fee that would be assessed against your account, or else you probably wouldn't have a 401(k) plan at all, because the vast majority of plan sponsors aren't going to write a check to pay all the various service providers directly.Trust me. I know what I'm talking about.

Not trying to disrespect you or your job. But, it's stuff like this that either keeps people from investing or feel the need to use a financial adviser. The first paragraph I understood. The second paragraph looked like this:

Also, you don't know if those blah, blah, blah, blahbity, blah, blah, blah, blhaahaha, blaha, blahooey, blah blah. ....................................................................................... directly.

Does everything have to be so difficult to understand. I honestly think people come up with long names and explanations for things that could be done much easier. Kinda like going to the Dr. He wants to give you the Latin name and the medical condition just to explain that you have a common cold.

The Saturn/Lexis comparison is more my speed.

Financial stuff is difficult, that's part of the problem. The contracts, the pros/cons.. it's not easy stuff. kind of like medicine.

often times a simplistic explanation is what gets people to buy, but often without fully disclosing the true nature of what they are buying.

I work hard to put things in patient terms as regards to dentistry... and i never feel like people are getting enough of the story to make a qualified decision...

same thing with any financial thing... the quick explanation doesn't get into those vicious small print terms which really explain the story.

 

[gruecd]

Does everything have to be so difficult to understand. I honestly think people come up with long names and explanations for things that could be done much easier. Kinda like going to the Dr. He wants to give you the Latin name and the medical condition just to explain that you have a common cold.

My bad. In a nutshell, there's a lot of behind-the-scenes work involved in administering a 401(k) plan, and therefore different service providers need to get paid for their work. In a few cases, the various providers bill the plan sponsor (the employer) and get paid directly. Easy to understand. In most cases, however, it's done by using fund with higher expenses, and those additional dollars are used to pay the service providers. In other words, the participants pay for the adminstration of their own plan.Does that help?

 

[wilked]

wilked, on 26 Apr 2013 - 09:46, said:

I can scan this list in about 15 secs and cross off all but 5 or so, the rest are overpriced. I don't need to look up Morningstar's ratings (useless) or past returns to know this.

Disagree, and I do this for a living. First of all, you have to look at net returns. If fees are above average, but the fund has consistently outperformed its peer group (net of fees), then so what? It's like saying you should always buy a Saturn instead of a Lexus simply because it's cheaper, all other factors/considerations be damned.Also, you don't know if those fund expenses include a revenue sharing allowance to pay an advisor, third-party administrator, recordkeeper, etc. Most do. In the absence of revenue sharing, either you'd be charged an explicit asset-based fee that would be assessed against your account, or else you probably wouldn't have a 401(k) plan at all, because the vast majority of plan sponsors aren't going to write a check to pay all the various service providers directly.

Trust me. I know what I'm talking about.

It sounds like this is rounding into an actively managed funds vs index funds question.

There are so many studies showing that index funds outperform active funds, but I like this one. Rick Ferri states it well, "The evidence in favor of all index funds, all of the time, is irrefutable, overwhelming and important to all investors."

http://www.forbes.com/sites/rickferri/2012/08/20/index-fund-portfolios-reign-superior/

With some very minor exceptions (Berkshire, Wellington come to mind) the investor is rewarded by sticking to Index funds and keeping what he/she can control (ie fees) low.

no one is debating managed funds vs. passive funds.

if you watched the show, you saw the numbers, it's irrefutable.

But I think what this poster is saying is that even in picking amongst index funds, people either won't do it, or would pick the wrong ones given their overall stupidity towards all things finance.

What would truly be worse... someone using an adviser and paying 1-1.5% which is not good, but at least they might direct them to a accepted strategy.

or someone picking an index fund based on something insane like... hmm.. foreign funds have done great lately... i'm going 100% foreign index fund! so their expense ratio is like 0.4%, but it's a completely unacceptable strategy!

I don't think people need 50 choices in their 401ks. TSP funds are low cost index funds for gov't workers and works great

https://www.tsp.gov/investmentfunds/fundsoverview/comparisonMatrix.shtml

That is the ideal for 401ks in my opinion

 

[gruecd]

wilked, on 26 Apr 2013 - 10:12, said:Scanning, I immediately throw away any fund charging over 1% in fees - that is ludicrous.

Again, wrong. You have to look at the various components of the expense ratio. There's the actual investment management component (what the fund manager is actually charging), and then there's the revenue sharing component (the amount that's being collected by the fund and "shared" with the plan's various service providers). Add them together, and you get the total expense.In your example (and I'm familar with Principal as a recordkeeper), I can assure you that those fund managers are not keeping the full amount that's being charged. You, as a participant, are paying (at least partially) for the various recordkeeping services that Principal provides, i.e., the website, statements, compliance testing, filing of the Form 5500, etc. Again, please trust me, and please ask more questions if you have them.Our industry gets a bad rap mainly because people don't understand how it works.

 

[wilked]

wilked, on 26 Apr 2013 - 10:12, said:Scanning, I immediately throw away any fund charging over 1% in fees - that is ludicrous.

Again, wrong. You have to look at the various components of the expense ratio. There's the actual investment management component (what the fund manager is actually charging), and then there's the revenue sharing component (the amount that's being collected by the fund and "shared" with the plan's various service providers). Add them together, and you get the total expense.In your example (and I'm familar with Principal as a recordkeeper), I can assure you that those fund managers are not keeping the full amount that's being charged. You, as a participant, are paying (at least partially) for the various recordkeeping services that Principal provides, i.e., the website, statements, compliance testing, filing of the Form 5500, etc. Again, please trust me, and please ask more questions if you have them.Our industry gets a bad rap mainly because people don't understand how it works.

Grue, why can't I compare total expense ratios between funds within a 401k plan? Can you post specific examples?

 

[fatguyinalittlecoat]

It is beyond unreal to me how people will spend hours and hours in their job, hours and hours clipping $0.50 coupons or shopping for shoes to save $5, or waiting in a 2 hour line for a FREE ice cream on Free ice cream day at the shop next to my office, but won't read one book on personal finance and execute the advice.. because that's too hard/boring.

I'm not sure if the disincentive is that it's too hard or boring. I think for people with lousy finances, it's very unpleasant to deal with this crap. Just looking at your retirement fund (or lack thereof) is depressing. People don't like to voluntarily do depressing things. I have to force myself to try to pay attention to my finances but I still don't do nearly as much as I should, because every time I do I feel lousy.

I don't think you can relate because you're in a positive feedback loop. For you it's fun to look at where your money is and how it's growing and how you're moving towards your financial goals. My dad is like you. Every time I see him he's talking about how he has these stocks that are going up, or these stocks that went down, or whatever. It's a fun game for him to try to get the most out of his money. If I was in his position I'd probably feel the same way.

 

[gruecd]

wilked - Nothing wrong with comparing them, but you can't just artibrarily dismiss an option because its expenses are over 1 percent. That's all I'm saying. For example, most 4- and 5-star actively-managed international (and particularly emerging markets) funds regularly outperform their index, and almost all of those funds are going to have higher expenses; it costs a lot to run those funds.A lot of plans will have index funds with total expenses well over 0.75%. The fund itself might only be charging 0.20%, but there's another 0.50%+ built in to share with the recordkeeper, broker, etc. Like I said earlier, if this type of arrangement didn't exist, only the biggest companies would even offer 401(k) plans, because the smaller ones couldn't afford to pay for them.

 

[Random]

It is beyond unreal to me how people will spend hours and hours in their job, hours and hours clipping $0.50 coupons or shopping for shoes to save $5, or waiting in a 2 hour line for a FREE ice cream on Free ice cream day at the shop next to my office, but won't read one book on personal finance and execute the advice.. because that's too hard/boring.

I'm not sure if the disincentive is that it's too hard or boring. I think for people with lousy finances, it's very unpleasant to deal with this crap. Just looking at your retirement fund (or lack thereof) is depressing. People don't like to voluntarily do depressing things. I have to force myself to try to pay attention to my finances but I still don't do nearly as much as I should, because every time I do I feel lousy.

I don't think you can relate because you're in a positive feedback loop. For you it's fun to look at where your money is and how it's growing and how you're moving towards your financial goals. My dad is like you. Every time I see him he's talking about how he has these stocks that are going up, or these stocks that went down, or whatever. It's a fun game for him to try to get the most out of his money. If I was in his position I'd probably feel the same way.

What have you done to change your situation for the better?

 

[Dentist]

wilked, on 26 Apr 2013 - 09:46, said:

I can scan this list in about 15 secs and cross off all but 5 or so, the rest are overpriced. I don't need to look up Morningstar's ratings (useless) or past returns to know this.

Disagree, and I do this for a living. First of all, you have to look at net returns. If fees are above average, but the fund has consistently outperformed its peer group (net of fees), then so what? It's like saying you should always buy a Saturn instead of a Lexus simply because it's cheaper, all other factors/considerations be damned.Also, you don't know if those fund expenses include a revenue sharing allowance to pay an advisor, third-party administrator, recordkeeper, etc. Most do. In the absence of revenue sharing, either you'd be charged an explicit asset-based fee that would be assessed against your account, or else you probably wouldn't have a 401(k) plan at all, because the vast majority of plan sponsors aren't going to write a check to pay all the various service providers directly.

Trust me. I know what I'm talking about.

It sounds like this is rounding into an actively managed funds vs index funds question.

There are so many studies showing that index funds outperform active funds, but I like this one. Rick Ferri states it well, "The evidence in favor of all index funds, all of the time, is irrefutable, overwhelming and important to all investors."

http://www.forbes.com/sites/rickferri/2012/08/20/index-fund-portfolios-reign-superior/

With some very minor exceptions (Berkshire, Wellington come to mind) the investor is rewarded by sticking to Index funds and keeping what he/she can control (ie fees) low.

no one is debating managed funds vs. passive funds.

if you watched the show, you saw the numbers, it's irrefutable.

But I think what this poster is saying is that even in picking amongst index funds, people either won't do it, or would pick the wrong ones given their overall stupidity towards all things finance.

What would truly be worse... someone using an adviser and paying 1-1.5% which is not good, but at least they might direct them to a accepted strategy.

or someone picking an index fund based on something insane like... hmm.. foreign funds have done great lately... i'm going 100% foreign index fund! so their expense ratio is like 0.4%, but it's a completely unacceptable strategy!

I don't think people need 50 choices in their 401ks. TSP funds are low cost index funds for gov't workers and works great

https://www.tsp.gov/investmentfunds/fundsoverview/comparisonMatrix.shtml

That is the ideal for 401ks in my opinion

you're right, they don't.

But what do you do when youre company doesn't have that.

I mean, you can only invest in what you have access to.

I can only invest in the plan i have at work... and that means dealing with a life insurance company where there's a horrible 0.5% risk and mortality expense, then i can invest in some index funds that have EXP Ratios of 0.3-0.5%

I'm sure everyone that really cares wishes they had access to some nice vanguard funds.. but not all of us do.

The bottom line is that the 401k system even with fees that are higher than i have in my Roth IRA or cash management account, the tax deferred nature really helps me out, as does the matching.