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Do You Want More Money For Retirement?
Many 401(k) plans waste people’s hard-earned money on unnecessarily expensive services and investments.
Did you know that Congress is investigating the high cost of 401(k) plans?
Chances are yours is NOT optimal in terms of its true cost, because the facts show that pension plans cost people more than they realize. And it seems many employers are unwittingly comparing their plans to the wrong benchmarks.
The good news is that it’s easy to optimize a 401(k) plan (reduce its cost and improve its investment performance).
Do you want more money for your retirement?
First, make sure your plan’s cost matches its benchmark. This step requires you to learn what a really inexpensive plan looks like. Truly inexpensive plans don’t have high hidden and/or camouflaged costs. You need to have the right kind of education and experience to be able to identify all the costs of a 401(k) plan.
Second, make sure that the basic composition of the investments at least matches the performance of their benchmarks. Easy! Low-cost index funds match the performance of their benchmarks, but few managed funds match their benchmarks, over the long term.
Third, make sure asset allocation, term, lifecycle, lifestyle, and balanced funds have a long-term track record. Otherwise, it would be a mistake to put them in your plan.
Fourth, identify every conflict of interest and potential conflict of interest to avoid overpaying for services and investments.
Fifth, implement effective checks and balances today to optimize your plan.
Most 401(k) plans are too long and expensive to manage. Many are wasting people’s hard-earned money on unnecessarily expensive services and investments. It is common to find that workers have a menu of investments that underperform their benchmarks after expenses, both in the short and long term. The employee often doesn’t know because they only see the performance of the fund, but not its actual return on investment (ROI) after expenses.
When you do the math, it’s easy to see that people aren’t getting their money’s worth!
Why not take a minute to compare what you have now to what you have the potential to have. Here is an example of an optimized plan:
- A diversified and basic combination of index funds that costs you 0.07% to 0.20% per year. (Tomorrow’s benchmark for the cost of index funds may be different.)
- Recordkeeping and administration that costs you no more than $25.00, per eligible employee, per year, with no hidden fees. (Again, this is today’s benchmark. Always know the current benchmarks for the cost of services – that way you’ll save time and money.)
- An education program that requires less time than you currently spend.
- An effective system of checks and balances.
- Investments that match market performance. You will have more money for retirement if your investments match the performance of the market than if your investments underperform it.
It is the fiduciary duty of the employer to act in the best interest of its workers, but it is your duty to be aware of your options.
Let’s review the benefits of optimization for both employer and employee:
- Low-cost services mean you can save more money for retirement than if your plan cost is higher.
- Matching benchmarks means you’ll get more money than if your investments underperform their benchmarks.
- Valuable time-saving programs mean you’ll spend less time managing your plan, monitoring its results, and monitoring your own investments.
- An effective system of checks and balances means that everyone who works for the company understands how the plan was put together, why it was put together the way it was, and how the plan is being followed for results.
If you don’t optimize your plan now, how much time and precious money will your procrastination cost you?
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