One who intends to leave others better off for his having existed.

10/9/14

Would most employee retirement plan investors prefer $121,040 after three years or $117,068?

A dollar invested in financial markets stands a chance to earn about 7% over time.

A retirement plan or investment taking 1.5% of $1.07 earns about $0.161 as the money increases in value.

That 0.161 cents is about 23% of the 7 cent gain.

If the $1 is $100,000 in a retirement plan, a 7% return = $7,000, of which the retirement plan takes $1,610 of the gains at 1.5%, leading to a balance of $105,390.

A 7% return on $105,390 = $7,377, leading to a balance of $112,767 of which the retirement plan takes $1,692 of the gains, bringing the balance down to $111,075.

A 7% return on $111,075 = $7,775, leading to a balance after a 7% return of $118,850 of which the retirement plan takes $1,782 of the gains at 1.5%, bringing the balance down to $117,068.

The more investors make, the more Wall Street takes.

Every dollar given away to retirement plans is compounding for someone other than the plan's investors, meaning a municipality or private company's employees. The longer the money increases in value, the more the retirement plan provider makes.

A $100,000 retirement plan account making 7% costs about that costs about $428 at 0.4% after the money increases in value instead of $1,610 at 1.5%, leaving the balance at $106,572 instead of $105,390.

A $106,572 retirement plan account making 7% leads to a balance of $114,032 instead of $112,767 at 1.5%, of which the retirement plan that costs 0.4% takes $456 instead of $1,692 at 1.5%, bringing the balance to $113,576 at 0.4% instead of $111,075 at 1.5%.

A $113,576 retirement plan account making 7% that costs 0.4% instead of 1.5% leads to a balance of $121,526 instead of $118,850 at 1.5%, of which the retirement plan provider takes $486 instead of $1,782, bringing the balance to $121,040 at 0.4% instead of $117,068 at 1.5%.
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In testimony before the Senate Finance Committee on September 16, 2014, Vangaurd Group founder John Bogle said: “A person saving for retirement who chooses low-cost investments could have a standard of living throughout retirement more than 65% higher than that of a comparable investor in high-cost investments.”

If two thirds of the expenses could be removed from any given traditional retirement plan, the difference for employees over time can be substantial.  A recent study reported a “seemingly small 0.75 percent fee difference could cost a worker almost $100,000 in fees over a lifetime” and “the corrosive effect of high fees in many of these retirement accounts forces many Americans to work years longer than necessary or than planned.”

A study of more than 3,000 employer-sponsored 401(k) plans found average plan participants in actively managed funds paid almost a full percentage point more in annual fees than for low-cost index funds.

Over a span of decades, many businesses in the financial services industry, with the acquiescence of most members of Congress, the Executive Branch and some U.S. regulators, are responsible for not acting in the best interests of consumers, as many retirement plan fiduciaries don't know what they should and are overcharged almost across the board.

The less investors pay for investment and administration services, the more money should accumulate for retirement.  Reducing costs should substantially increase returns, effectively providing a "raise" for participants via less hard earned money leaking its way to Wall Street.
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Previously;

City of Durham VT PLUS Stable Value Fund Expense Ratio = 1.11%; Orlando, Florida, Same Fund = 0.58%

http://hartzman.blogspot.com/2014/10/city-of-durham-vt-plus-stable-value.html

Jacksonville, North Carolina employee fees for the same 457 plan fund compared to Orlando, Florida's

http://hartzman.blogspot.com/2014/10/jacksonville-north-carolina-employee.html

Some Wells Fargo Employee 401(k) plan Fund Expense Ratios as of 3/21/2013

Wells Fargo Stable Value Fund Expense Ratio = 0.20%

http://hartzman.blogspot.com/2014/10/some-wells-fargo-employee-401k-plan.html

On North Carolina State's 401(k) and 457 "GoalMaker" Target Date Funds

http://hartzman.blogspot.com/2014/10/on-north-carolina-states-401k-and-457.html

North Carolina State 401(k) replaced index funds with higher cost actively managed accounts in 2013

http://hartzman.blogspot.com/2014/10/north-carolina-state-401k-replaced.html

"Investors pay exorbitant [401k] investment fees"

http://hartzman.blogspot.com/2014/09/investors-pay-exorbitant-401k.html

North Carolina State 401(k) plan; Galliard is owned by Wells Fargo

http://hartzman.blogspot.com/2014/10/north-carolina-state-401k-plan-galliard.html

"NC Pension Accused of Pay-to-Play Violations"

http://hartzman.blogspot.com/2014/10/nc-pension-accused-of-pay-to-play.html

A Few Observations on Share Classes and Wells Fargo Stable Return Fund

http://hartzman.blogspot.com/2014/06/a-couple-of-observations-on-share.html


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