Recently, the New York Times published an article ominously titled: Think Your Retirement Plan Is Bad? Talk to a Teacher.
The implication here is sadly twofold. First, retirement plans can not only be confusing, but they can be extremely costly and detrimental to your long term financial goals. Secondly, even as bad as it is for most people, it's even worse for teachers and other public employees like government employees, health care professionals, and clergy.
Unfortunately, they are right on both counts.
The summary of the article is this: you are probably getting charged way more fees for your retirement account than is necessary - which can erode tens of thousands of dollars of your hard earned savings - and regardless of your fees, you could be investing in much less than optimal retirement investments.
That should come as a shock - after all, it's your money.
One such teacher, Ms. Jusinski, paid over $15,000 in fees and commissions in just 8 years! As awful as that is, she fared better than a fellow teacher who suffered even more drastically having paid $37,500 in commissions and fees, which resulted in a devastating $113,000 less than what she could have had had she made broad-based, lower-cost investments (these broad-based, lower-cost happen to be available to virtually everyone).
So, the two questions on the table are, "am I getting charged too much for my retirement savings?" and "have I selected strategic, low-cost options?"
The quick and dirty answers to these thorny and important questions are:
- Your retirement account should be getting charged very little, hopefully in the neighborhood of 0.05% and 0.5%. A red flashing warning light should go off in your head if you see anything above that amount. If you're not sure what you're getting charged, you should call your retirement plan provider or ask your school/organization to help you understand your account better.
- Research continually supports that you should be investing in passive investments such as broad-based, low-cost index fund options (also known as Exchange Traded Funds or ETFs) and not in actively managed investments. Active funds like mutual funds and other investment portfolios have been time and time again shown to be more costly while getting inferior returns - so avoid these if you can.
Remember, you have the right to know what you are investing your money in and whoever your account is with must be able to explain their fees and commissions so that you can make a more informed decision about your wealth and retirement savings.
It's also important to realize just how much the slight difference in the commission and fees can be over the long run. Even a 1% difference can mean that you end up with roughly $20,000 less of your own money.
Finding the answers to these questions isn't always as straightforward as it should be, so if you are needing a second look or some clarifying information, you should call us and set up a free financial health check up at holbergfinancial.com.
We help people all across the country figure out answers to questions like these and we think you should keep as much of your retirement savings as possible, that's why we have an affordable, unbiased, and awesome service that's made just for you.
You can set up a free account on our website and get a unique financial health score in less than 3 minutes to see how you're doing financially. Get your score here and we hope to hear from you soon.