Posts tagged Retirement Security
Social Security Works
Retirement Security for All
Why the New Disclosure Rules for 401(k)s Don’t Matter
Until this year, banks were allowed to charge hidden fees as they managed 401(k)s, costing an average family up to $155,000 by retirement. Finally, the Bureau of Labor is now planning to enforce a ruling that will force banks to disclose the money that they are taking away from your account. (still to be determined: HOW WAS THIS LEGAL BEFORE?) But Bob Sullivan points out that this is still going to obscure all of the fees they’ll charge anyway.
The disclosure box is a welcome change, but it’s probably not going to make much of a difference, laments Robert Hiltonsmith, author of the Demos study.
“It will be underwhelming from a sticker shock point of view. It will not have the effect the doomsayers predict,” Hiltonsmith said. The dollar amounts shown will reflect annual amounts, not the real harm from loss of compounding growth, he said. A 27-year-old with $10,000 invested in a mutual paying a 1 percent expense ratio will pay only about $100 in fees in a year, a number that will hardly inspire shopping around, Hiltonsmith figures.
But that benign-sounding 1 percent annual fee is the source of most 401(k) folly. Compounded, it can result in loss of one-third of retirement savings, or more.
….
It doesn’t have to be hard to see how recurring fees devour much of your 401(k) money. Here’s a simple, if slightly imprecise, way to think about what happens when someone takes 1 percent of your money every year. If you had a dollar, and someone took one penny every year for 30 years, you’d only have 70 cents at the end. That’s what investing in a 401(k) mutual fund does to your money. These fee losses are obscured by additional contributions you make, and by market ups and downs – complex 401(k) statements are an obfuscator’s dream — but there’s no way around it: Fees are killing most investors’ returns.
Saving money is expensive, report finds:
A recent study by Demos, a research and advocacy group, found that an American household of two median-income earners will pay, on average, almost $155,000 in 401(k) fees over 40 years. Yes, you read that right.
“This household could have bought a house with the amount they paid in fees,” the report notes. And because mutual funds in 401(k)s take fees off the top before reporting rates of return and share prices, “account holders generally have no inkling how much all of this costs them.”
Gallup’s poll shows that more non-retirees and retirees expect to rely on Social Security as a major source of income after they retire.
Even after this increase, nonretirees are much less likely to see Social Security as a major retirement funding source (33%) than current retirees are to say they rely on it as a major source of income today (57%). This gap in nonretiree expectations versus retiree reality has been a consistent trend over the past decade.
This gap shouldn’t be surprising, since it’s a major reason that Social Security was created. People have underestimated or under-saved what they would need for retirement for decades. Social Security is meant to be there to make up for that planning gap.
Obama’s endorsement of same sex marriage is welcome after the disappointment in North Carolina, but it’s also an opportunity to consider how far we have to go with Social Security.
For many LGBT seniors, Social Security cannot work because of the federal and state laws that won’t recognize same sex marriage. This report comes from the LGBT Aging Center, and offers very good coverage on the difficulties facing the elders in the LGBT community.
The legal barriers around Social Security break down pretty easily, because Social Security provides additional benefits for spouses.
- Gay marriage is only legal in nine states, so only spouses in those states would be allowed to receive benefits.
- The Defense of Marriage Act prevents the federal government from recognizing marriages even when they do occur.
This has a very serious impact on the financial stability of elderly LGBT Americans, as this table shows.
Any time we see an article like this, which suggests that indexing the retirement age to longevity is a “reasonable” compromise, we have to call Cat Actuary to set them straight.
(For more on the retirement age, take a look at this report from the Economic Policy Institute)
