By Kris Miller, LDA
Most people who have a 401(k) or an IRA have little idea of where their money is invested. When you ask them, “whereʼs your retirement money?” they reply, “at the bank” or “with my broker.” No wonder so many people are financially unprepared for retirement.
If you want to be financially secure in your Golden Years, you must take control of your investments today. Handing your money over to a broker and hoping they will look out for you is a recipe for disaster. Imagine saving and investing for 40+ years, only to find out at age 65 or 70 that you donʼt have enough money to retire. It happens every day.
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With so much financial planning information available, why are so many people unprepared for retirement? Because there are certain financial planning myths that simply wonʼt go away. And the more you believe the myths, the more of a struggle your retirement will be. Letʼs uncover the truth (that most brokers would like to remain a secret) once and for all so you can take charge of your financial future.
Myth #1 You Must Put Your Money at Risk
Most 401(k) and IRAs are invested in the stock market, and the stock market is the riskiest place to put your money. Youʼve likely heard “market experts” say that now is a good time to invest in the market. A broken watch tells the right time twice a day, but thatʼs no reason to wear one.
Likewise, youʼve likely heard someone start a sentence with, “our economists are forecasting…” Ask your broker if the firmʼs economists predicted the most recent recession, and if so, when? Warren Buffett once said that forecasters make fortune tellers look good. If you want to earn higher returns, most brokers tell you that you have to take more risk. That’s not entirely true.
HERE’S THE TRUTH: Thereʼs no reason for all of your money to be at risk. You can make money with safer investments, such as fixed index annuities, which are like a savings account with an insurance company. In fact, even during the Great Depression, not one person lost money with a fixed index annuity. Theyʼre safe, they have liquidity, and they offer better rates than most other products.
Myth #2 Your Broker Only Makes Money When You Do
Itʼs nice to think that your broker only cares about you and your financial future, but thatʼs not 100% true. While your broker likely does want the best for you, hereʼs what usually happens when you let them invest your money:
Your broker buys shares of stocks and mutual funds. The market does one of three things: goes up, goes down, or remains stagnant. Wall Street canʼt control the market, and neither can your broker, but they make money regardless of whether you do or not.
HERE’S THE TRUTH: Brokers donʼt only make money when you do. Sure, theyʼd like you to make money, but they actually make their money by managing your money. They get paid when the market goes down; they get paid when the market goes up; they get paid when the market is flat. In other words, they always win. Their clients, however (and that would be you), only win in one of those three directions. Brokers win in all three.
Myth #3 Small Fees Are Not a Big Deal
Even if you are putting money into your retirement account on a regular basis, hidden fees may be slowly draining your account. The disclosed fees are simple to find — look at the expense ratio, which is found in the prospectus. These fees are commonly referred to as “management fees.” Administration fees (added on top of management fees) are much harder to find. You may think that a small fee here and there isn’t a big deal.
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After all, how much could these administration fees possibly be? Consider this example from the U.S Department of Labor 401(k) fee website:
“Assume you are an employee with 35 years until retirement and a current 401(k) account balance of $25,000.
If returns on investments in your account over the next 35 years average 7% and fees and expenses reduce your average returns by 0.5%, your account balance will grow to $227,000 at retirement, even if there are no further contributions to your account.
If fees and expenses are 1.5%, however, your account balance will grow to only $163,000.”
The 1% increase in fees reduces the account balance at retirement by 28%. Thatʼs a huge fee!
Be sure to look for and ask your broker about the following fees:
• Plan Administration Fees
• Investment Fees
• Individual Service Fees
Plan Your Future Today
Whether you plan to retire today or in 30 years, you need to take control of your retirement accounts right away. Understanding how your money is invested and making sure itʼs working for you in the most efficient way will give you peace of mind and future security. By dispelling these three myths and putting some time into planning, you can rest assured that your retirement years will be pleasurable—and prosperous.
CA Insurance License OC25427 I am not an attorney. I can only provide self-help services at your specific direction. Should you need legal advice, you will need to consult an attorney. We do Estate Planning, Wills, Living Trusts, Power of Attorney, Health Care Directives and Deeds. Legal Document Assistant in Riverside County, California LDA #000041 Riverside County, expiring 10/15/2021
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