11/17/2011

Brian Graff, Executive Director for ASPPA (American Society of Pension Professional and Actuaries) debunked 6 myths regarding to 401K retirement plans:

Myth 1 – tax deductions for employer contributions and pre-tax deferrals by employees in 401(k) plans are lost revenue for the government. Short term government revenue can be boosted by reducing the tax deductions with the expense of losing long term revenue while creating more liabilities for government.

Myth 2 – less than 50% of American workers are covered by retirement plans. In March 2011 the results of the National Compensation Survey conducted by the Bureau of Labor showed that 73% of full time American workers have access to a retirement plan and of that amount 80% of them use their plans.

Myth 3 – only the wealthy benefit from retirement plans. Not true, 74% of participants in defined contribution retirement plans (such as 401(k) plans) have family incomes below $100,000 a year. Thirty eight percent of participants earn less than $50,000 a year.

Myth 4 – 401(k) plans are inadequate. However, tabulations based on the EBRI/ICI 401(k) Accumulation Projection model show the replacement ratio for 401(k) plans and Social Security combined is over 100% for the lowest income quartile, and well over 80% other income quartiles.

Myth 5 – cuts to limits on retirement plans will only impact the wealthy.

Myth 6 – workers will save for retirement without a workplace retirement plan.

Read the original article.

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06/28/2011

Reuters' John Wasik published an article 401(k) rip-offs: How to protect yourself that details 5 most common abuses in your work place retirement plans:

• Charging exorbitant expense ratios. You should get a discount on the funds within a 401(k) plan, especially in large plans where there are economies of scale. Are you getting an institutional rate? Has your plan administrator considered low-cost exchange-traded funds?

• Group Annuity Plans. These are among the most expensive plans with up to four layers of fees, all of which deplete your wealth. They are rarely a good deal for you, but enrich brokers, agents and middlemen.

• Expensive Share Classes. With broker-sold products, the difference in the share class can add up. It’s generally a bad idea to buy a plan through a broker or agent — unless they add value. Ask for the cheapest share class or buy directly from the fund manager.

• Fees on “sub-advised accounts” or “collective investment trusts.” Your plan sponsor may have brand-name mutual funds that seem to have low expenses, but you may be secretly nailed with additional fees that can only be found by sifting through plan documents.

• Wrap Fees. These are unnecessary expenses that are larded on by middlemen. Also look for “third-party administrator” fees.

A comment in the article put the problems in 401K plans elegantly:

I consider 401k’s to be the “Madoff scandal of the average person”. It’s a shame that small business, i call them our “economic patriots” — are the people that suffer the most.

We encourage you to speak out, work with your employers and plan sponsors.

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05/11/2011

Based on Employee Benefit Research Institute's (EBRI) recent survey, 27% of workers are 'not at all confident' about saving enough for their retirement, another 23% are 'not too confident'. Here are some more findings:

• Little or No Savings: 29% say they have less than $1,000 in savings. 56% say they have less than $25,000 in savings and investments, excluding the value of primary home and any defined benefit plans. 
• Expected Retirement Age Rising: the percentage of workers who expect to retire after age 65 has increased over time, from 11 percent in 1991 and 1996 to 20 percent in 2001, 25 percent in 2006, and 36 percent in 2011.
• More Expecting to Work in Retirement: More workers now expect to work for pay in retirement. Seventy-four percent report they plan to work in retirement (up from 70 percent in 2010), three times the percentage of retirees who say they actually worked for pay in retirement (23 percent).

The other recent survey by Fidelity on 11 million 401K participants on Fidelity platform reported the following (a Marketwatch story by Andrea Coombes)

• Average 401K Account Value: $74,900 at the end of the first quarter.
• Average 401K Account Value for people who have contributed continuously for 10 years: $191,000.
• Average 401K Account Value for people who have contributed continuously for 10 years and 55-years-old or older: $233,800.

So for those who are unlucky, the main issues are jobs, jobs and jobs; save, save and save.

For those who are lucky enough with $200K savings, the main issues are preserving capital and growing their nest eggs.

See How to Build a Low Risk, Income Producing Portfolio With Higher Returns article,

or Portfolios like Retirement Income ETFs for better retirement investing.

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