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Why should your failure to plan create an obligation for me? July 31, 2014

Posted by forwardfinancialplanning1 in 401k plans, Personal Budgets, Retirement Savings, Roth IRA, Traditional IRA.
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Most of us go through life knowing that we should be addressing some particular need, but often failing to act upon this necessity. For instance, I positively know that I need to lose 20 pounds, yet I’m not making the requisite dietary changes. However, I’m living with the consequences of a larger than optimal waistline and I don’t expect others (society as a whole and taxpayers in general) to come to my rescue.

However, I wonder what’s going to happen when a very large swath of American society hits retirement without having properly saved for it. A recent Harris poll confirms the degree of unwillingness to address an obvious need. Among people in the 68+ age group who have not yet retired, 51% say that having enough money to retire is a major concern, yet only 29% of this group is putting aside anything to meet that need. Among Boomers aged 49-67, three quarters are worried, yet only 43% are saving. Gen X’ers (aged 37-48) are more worried at 77%, but are doing only marginally better with a savings participation rate of 48%. Millennials (aged 18-36) are saving at a 46% rate, with 72% of them being concerned enough to describe it as a “worry”.

So when you look across all of these generations, you see that less than half of Americans as a whole are acting on this critical need. What’s going to happen when they are all aged and too feeble to work? The current “progressive/liberal” movement will surely seek to socialize the costs, and with more than 1/2 of the (voting age) population doing nothing to prepare, they may be able to pull it off!!
If anything causes the “American Experience” to collapse from within, this might be it………………


401k investors reaping benefits of competition July 22, 2014

Posted by forwardfinancialplanning1 in 401k plans, Retirement Savings.
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If you listen to the rantings of some notable plaintiffs attorneys, one would believe that the investment services industry is the single biggest contributor to the abysmal state of retirement preparedness in this country. They file class action lawsuits whenever they can find a few souls with an “axe to grind” against a former employee citing rampant failure of the 401k plan’s fiduciary committee to prudently monitor retirement plan costs. Further, they allege self-dealing and a failure to manage the 401k plan for the “exclusive benefit” of the participants.

Well, like most things in life, the truth is what never makes the headlines. While there’s no doubt that there are some really bad 401k plans in existence, other data would suggest that things are looking better and better for 401k plan participants.

Recent research by the Investment Company Institute (admittedly, the mouthpiece of the mutual fund industry) reveals how favorable the trends have been for 401k participants. For instance in 2013, the average retail equity mutual fund in the US had an expense ratio of 1.37%. However, the average 401k participant who invested in equity mutual funds paid only 0.58% annually. Further, the research found that from 2000 to 2013, this equity mutual fund expense ratio had declined by 25% for 401k participants. For hybrid (balanced) and bond funds, the declines from 2000 to 2013 were 19% and 21% respectively.

So while we’re definitely big fans of low cost mutual funds, the 401k plan situation is not as dire as one might be led to believe. Competition is driving down participant cost in 401k plans and all of us are benefitting. Imagine if new cars or new houses in 2013 cost 25% less than they did in 2000!!!!