I'm still inspired by the latest wave of anti-401(k) fee sentiment (most recently found on TheAtlantic.com's crushingly expensive mistake piece). So I am committed to write a series of articles on fees and how to reduce them. The latest is What You Pay for That 401(k).
This week, Marketwatch posted an article about the 5 Retirement Errors You Must Not Make. They remind me of my article, 5 Biggest Retirement Mistakes, but with a couple of differences. This article talks about speculation vs sound investing, too much trading, and timing the market. I agree with all of these, and may have to add a couple to my own list.
I get a lot of retirement news coming through my feeds, but it's rare to hear a story like the one I found recently about a Valentine's Day murder-suicide in an Indiana retirement home. A 77-year-old man may have shot a 76-year-old woman, before shooting himself.
It's a tragedy, of course. But I found myself intrigued by the story and what could have happened between these two. I can't find any backstory, but the person who makes it up has a major motion picture deal on her hands. For anyone who thinks that life ends after retirement, this story at least gives us hope for some serious drama in our senior years.
Another week, another story about someone not prepared to retire. This week, it's on US News, and it's about retirement strategies for the self-employed.
As a currently self-employed person, I understand how hard it is to come up with extra cash to put away for retirement. But I have an even more compelling reason for saving: I can write it off as a business expense. Just take it right off the top of profits and lower my taxable income. I can't argue with that.
There's still time to open and fund a self-employment retirement plan for 2013 (with the exception of an individual 401(k)). Take a look at the retirement options for self-employed business owners.
TheAtlantic.com recently posted a piece, The Crushingly Expensive Mistake Killing Your Retirement. A very balanced, calm title, no? But the subject matter is a good one. It's all about the fees we pay for retirement investments without even thinking about it. With obscure-sounding names (like loads or 12b-1s) mutual fund fees always seem a little unclear even when they are fully transparent. And because they are taken out of the account automatically, you could easily completely ignore what you are paying for your mutual fund.
So what does one do to avoid paying too much? Looking for index mutual funds is a good start. They are cheaper than actively managed funds, and (as The Atlantic article shows) they have historically outperformed those funds managed by stock pickers. Exchange traded funds are similar to index mutual funds, and they are even cheaper than mutual fund options. Your 401(k) may or may not offer ETFs, but once you are aware of fund fees, you'll find yourself considering not only the investments that not only have had the best performance, but also those with the lowest expenses.
A reader sent me an infographic from a site called Accounting-Degree.org. The illustration is about the Crisis in Pensions and Retirement Plans, and I think it's worth a look. The graphic provides an interesting overview of the problems that retirement plans and retirees face. There are political sides to this argument, and I'm staying out of that for now. Still, it's good to know the subject matter well before choosing sides.
I love the idea of retiring somewhere exotic, but I don' t know the first thing about how to do it. Fortunately, I know Einat Mazafi, who owns the New York-based international shipping and moving company, NYShipping. Mazafi has helped many clients with overseas retirements, and has lots of advice on what to consider before retiring abroad. Recently, she compiled a list of the top 10 retirement spots outside of the United States. If you are considering retiring abroad, this list is a good place to start.
I received a question from a newsletter reader: "What are the pros and cons of naming your revocable trust as the contingent beneficiary of your retirement assets (401K and IRAs) instead of naming children as the beneficiaries?" I wasn't sure, but I did some research and found out that naming a trust as a beneficiary to a IRA or 401(k) can make sense for some folks.
I had a talk with a friend the other day, who admitted that his own retirement plan hinged on inheriting his mother's retirement plan. He's necessarily proud of this, he said, but he's sure he's not the only person counting on an inheritance to get them through. I know a lot of folks who have phantom inheritance money earmarked for the kids' college, debt relief, and so on.
The idea of counting on an inheritance is a risky one, to me. I prefer to think of any potential inheritance as a bonus. But it got me thinking, many inheritances today are probably coming from retirement funds, such as 401(k)s and IRAs. That got me thinking, what happens when you inherit a retirement account? What do you do with it? What are your options?
I had to share the good news I came across in the LA Times last week: "Retirement prospects are fairly good for people with 401(k) plans."According to a new Employee Benefits Research Institute study, somewhere between 83% and 86% of American workers are likely to generate 60% or more of pre-retirement income, and up to 76% will be able to generate 70% of pre-retirement income from a 401(k) and Social Security benefits. (Seventy percent of income is the amount many people shoot for when preparing for retirement.) The research director at EBRI even called it an "optimistic message."
Still, the study does not take into account the possibility that Social Security benefits will not meet payout promises or will be drastically reduced in the future. And just over half of us even have access to a 401(k). But let's stick to the optimism. President Obama has introduced new "myRA" or my IRA accounts for those who don't have a plan through work. It's a start.