10 things 401k plans won't tell you

Hidden fees, paltry choices and lousy investment returns could delay your retirement -- or prevent it entirely.

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49Comments
Nov 23, 2012 8:22PM
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"Advisers recommend 10% as a baseline minimum", on top of the 7.5% Social Security ?

 

So, 40 years after the introduction of a "supplement", the core defined benefits are gone, Social Security is going broke, the management fees of 401Ks can suck decades out of you, and trillions of gambling chits went into Wall Street, the private sector employees are facing a $4.3 trillion shortfall in their old age?

 

Doesn't that sound like one of the biggest rip offs of all time???

 

Urging the suckers to put mor money into their 401K does make sense though. God forbid they'd be allowed to put 15% into Social Security, and trust in their government instead of Wall Street.

Nov 23, 2012 6:10PM
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It's very important to track your investments, as most of these 'professionally managed' mutual funds under-perform the market.  For a simple comparison, just see how your investment portfolio did compared to the Dow or S&P.  You shouldn't be worse than the Dow consistently, as you can match the dow with a simple index fund.

I think the main problem is that many investment professionals are basically just salespeople.  That is, they get a commission on each sale - but the actual return/performance of what they sold you really doesn't matter to them.  They don't really care about the long-term impact, or your retirement, they just care about their own short-term commission.
Nov 26, 2012 10:11AM
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You definitely need to understand what you are doing !  I went to a financial advisor ONCE...basically you give them money, they take a commission and than some computer program tells them when things need to be adjusted....Most of them do not know any more than the average person.

That is not personnalized guidance.  I have had better luck on my own.

Nov 24, 2012 11:16AM
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Yet another article on 401ks that entirely misses the big issues:

Here are my issues with them:

1. You have no other option to contribute as much tax-deferred if you're unhappy with the plan. I guess you could change employers to get a better plan but that's extreme.
2. You aren't allowed to rollover the balance into your own IRA unless you leave the company.
3. Your employer (in league with the provider) determines what investment choices are best for you.

I suggest you do what I've done and email congress to BREAK the 401k connection to the employer. Why is it 'employer-sponsored?' That's the scam! It should work just like your self-directed IRA; you simply tell your employer how much you want deducted and the acct # of your IRA to send it to, and if there's a match they can send that there too. Thus you control the expenses and the choices just like you already can with all other aspects of your financial life.

1. Ask for a self-directed 401k that's not employer sponsored.
2. Ask for the option to rollover some or all of the balance to an IRA once a year regardless of life circumstance.

Nov 25, 2012 6:35PM
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My employer, since they are a tiny business can only afford to offer us a company sponsored SIMPLE IRA.   Can't contribute as much into one of these as we could in a 401k.   But, at least the employer matches 3% for us.   And they use Vanguard Funds.  I put all my contribution into a Vanguard Target Retirement fund that has a .17% annual expense ratio.   There are no other fees involved in the plan, just the annual exp ratio.   At least I know exactly what I am paying in fees on my retirement money.   And that fund automatically adjusts the bond to stock ratio each year as time goes on.
Nov 26, 2012 11:38AM
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This is the same old article that has been written time and time again. What would be nice is an article pointing out some books or help sites for the average person who doesn't understand.
Nov 23, 2012 10:18PM
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not all employers match or even contribute to a 401K plan.  Ours doesnt.
Nov 26, 2012 11:46AM
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You ever wonder where these so called Business Analyst and or Stock Analyst are coming from with their comments and articles on the market. Good case in point, the past weekend all the analyst were commenting on the record year for retail sales over the past weekend. Now just this morning because the market goes down and so do retailers like Target go down the analyst claim it's due to "Fiscal Cliff"'.

 

They are all a bunch of liars and truly do not know what the hell they are talking about. 

 

It's due to profit taking and overall market manipulation by the big guns. Just plain screwing of the small 401K investor

Nov 26, 2012 11:06AM
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When you start a 401k at your company, you need to realize that you've just added another job responsibility to yourself; managing your money ! The company itself isn't going to look out for your best interest and certainly not your manager or supervisor. The money you've invested in that fund is now 2 or 3 degrees of separation form you, meaning that it's been 'handed' off to a manager of another company( or computer program) that manages that particular fund. Not very personal and very risky these day's !
Nov 26, 2012 12:14PM
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The one thing for sure is most of us will need a heck of a lot more than we will have! Thats for sure. My 401K goes up and down more than the price of gasoline. In fact almost coincides with the price of gas, go figure. Once when they repaid almost %30 percent annual return they were a goldmine, not now however at 3 or 4 % still better than CD's or saving accounts.
Dec 7, 2012 2:25PM
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That huge sucking sound over the past few decades is from the rich, elite, policy makers in global banks, global governments, and their lobbiests. They have squashed policies and practices that were designed to give the middle-class some security so that instead of letting the middle class gain wealth and security, it goes to the wealthiest among the planets inhabitants (those who make the rules). That sucking sounds is hidden fees going to the banks, lowered wages, weakended and busted unions, higher taxes as a percentage of income, policies that keep money out of the pockets of share holders, more governement fees for services and higher fees for the same or less service...and the list could go on.  Trickle down theory? Don't you believe it. It's actually a gusher up.
Nov 26, 2012 11:13AM
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This article is rubbish. Everyone should be investing 15% of their household income into retirement. If your company offers a match, take it! It is free money. Beyond that, put the rest of the money into an IRA or Roth IRA. My mutal funds have a track record of 14% right now. I put $15,000 each year in retirement, and have never felt better about my financial future. The 401k plan is much better than a pension! (If you know what you are doing). Research mutual funds that have a good track record.
Dec 7, 2012 6:38PM
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Basically 401 k plans were designed to supplement pensions. I can see that, but the investment industry pounced into the foray, as they knew they could get $$$$ in fees from "average middle class Joe's".   For most  Americans that invest into 401 k's don't have a clue about investing. They know they should invest for retirement, but never educate themselves. Remember this people..NOBODY LOOKS AFTER YOUR MONEY BETTER THAN YOU DO.  So, that also means educating yourselves about investing, and the merits of compounding interest.  That is key, especially for the younger generation. The more time your investments have to grow, the better compounded returns are.

  I assist fellow employees on investing in their 401 k's. I am not a advisor, but, I study the markets, and educate myself.  I assist my fellow co-workers. I try to explain the basics, of which many don't have a clue.  Of course 401 k plans want you to invest into mutual funds, as they reap big profits off investors in these funds. For the average Joe, a mutual fund can sometimes do ok, but, the mutual fund makes money off of you whether that fund makes money or not. It's in their expense ratio..another name for a FEE to run the fund. 401 k plans would be better off just paying the company that runs the 401 k for the company to charge a flat fee for investments made in the respected employees plan. Expense ratios vary widely, especially in emerging  funds and specialty funds.  I can see the mutual fund companies charging higher fees to people outside of a 401 k plan, but within 401 k's....a flat fee should be the norm.  Larger companies will have the advantage there, as more employees investing into 401 k's, the fees could be lower, and the employees company could use leverage with different 401 k plan providers. So, a disadvantage to the smaller companies.

  I dumped all my mutual funds in my 401 k plan at work, when our company allowed us to invest through the 401 k plan brokerage account.  it's still before tax 401 k dollars, but, I invest my money into whatever i want. Stocks, bonds, cd's, all kinds of investments. There are a few no no's as investing in MLP's and my own companies stock.  I have far greater control of my investments. I invest in individual stocks, and especially stocks that pay dividends. Dividends are free money paid by companies, just for investing in that companies stock. I can choose whether to reinvest my dividends into more shares of that company, or take it as cash, and use that cash to reinvest it somewhere else in my 401 k plan. That is a far greater choice allowed to employees investments.  My return for the year at present is 17.6%.  My goal is at least a 10% return a year on my investments, and believe me, dividends , are a key driver to better returns. Usually in mutual funds, the dividends you receive are at the end of year, like now.  Most companies pay dividends once a quarter, and reinvesting those dividends every quarter can help your investment right away. By waiting until the end of the year to get paid those dividends, they haven't compounded during the course of year. By the way, I pay a flat fee of $12 a year and a  (little high) $8.75 a trade. A trade is when you buy a stock, and when you sell a stock. Most mutual funds in 401 k plans charge the fee based on how much money you have in your account. The more in the account, the more you pay in "FEES". those fees over time will erode your returns, especially when you amass a big account.

 So, i know a long winded post here, but, your company or investment "professionals" won't look out for your best interests like you will. You work hard for your money, so now work hard for your investments to prosper. There's no free lunch in life, so do yourself a favor, and get educated.

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Wall Street Banksters in Charge of our Economy!
Wall Street Gamblers deregulated government!
Wall Street & Banks= "financial weapons of mass destruction"
Get Wall Street out of Washington!
Nov 24, 2012 9:02AM
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While we all know a 401K is an investment which has risks, I think some people would prefer a more conservative investment option that's guaranteed (to never go below the principal investment and grow with the rate of inflation), even if the returns are likely to be lower. But nothing is guaranteed anymore.

My old 401K had one option which was "guaranteed", but with a low return. My new 401K doesn't have this option. So technically, although unlikely, it could be wiped out.

Wall Street loves high risk because it often comes with a possibility of high returns. For some middle class people, that prospect doesn't have the same appeal, especially if we're no longer "Spring chickens".

Dec 12, 2012 1:57PM
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if you are a middle income earner and contibute to 401k,the only advantage you get is the discpline to set aside something you would have spent if it were not taking before you get your paycheck but if you really want to retire, you have to brace up to save up to 20% of your income.Look for a strategy that grows to out pace taxes and inflation,your capital is safe and you have tax free withdrawal strategy.Otherwise,if you leave your future in the hands 401k contibution,by the time you retire it will be too late to do anything but to go back to work.We are in the era of self funding tighten up your belt
Dec 8, 2012 12:37AM
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I've had both a 401k and an investment acct. I found the 401k with a 50% company match had made me more money in the long run than I see the investment acct. doing. Too many hands in the pot. Taking out too many fees. Especially hidden ones.
I ran my own 401k acct., but opted to pay them at the investment acct. to do it because I'm too tired to learn this stuff all over again. They claim they ONLY take 1.25% out. But watching my acct. lose thousands for this 1.25% is a bust. I don't have that much in it to need to lose so much each year. I'm sure whoever is running this thing is filling their pockets plenty, since I am but one investor. No wonder these places are rich as Hell.
Plus...if I want to take out my money, I have to shell out 20% taxes right off the bat. Since my acct. is filled with before tax money, that was chosen by my Ex. When he took his portion out, he took out all the after tax contributions for himself. Screw me !! By all of them !!
But...I'd much rather keep my money under the mattress these days. When ya don't...every Tom, Dick & Harry has his hands in it.

Jul 11, 2013 2:08PM
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The 401k movement is a scam - it artifically props up the stock market making fund managers billionaires - and the value of the typical 401k is next to nothing compared to traditional retirement plans.  $100,000 in a 401k at 5% is $5,000 a year (before taxes) that is laughable.  Also you have no control when your money enters the market and guess what? - stock prices tend to trend up right around the time your money is set to enter the market - people are making billions of dollars just on the small margins at the times when the money enters the market.  The fund managers, investment bankers and so on - know the exact time your money will hit the market and move prices accordingly.
Dec 7, 2012 9:36PM
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What a BS article.  YES, 401k plans WERE meant to supplant pension plans.  But, the general public is to fricken lazy to save enough.  They would rather spend money on their big screen, new cars and other junk before saving for themselves, then they whine that big business has screwed them.  I am sick of people not making good decisions, not taking care of themselves then trying to make it someone else's fault.  Let em starve.  
Dec 7, 2012 8:48PM
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you are in a ponzi scheme when you give somebody your money to save for you you are a fool!!! and if you do get it back 50% goes to the government!!!  put your money in the mattress

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