Planning for retirement is not as easy as it once was, partly because there are more choices today, and because it is harder to save money. Another problem, though, is that the various financial companies themselves are taking larger portions of your retirement money in fees.
Financial Companies Are Taking More Money
The HuffingtonPost.com reported that Wall Street is taking more of your retirement money through two things – more fees and bad management or performance. In the article, a think tank – Demos – had looked into a research paper by Robert Hiltonsmith written in 2012, in which he found that an average two income family would pay about $155,000 in fees on a 401(k), which is also about 30 percent of their total savings for retirement.
Actively Managed Mutual Funds Do not Perform Better
Some companies offer what is called actively managed mutual funds, which sounds attractive to many people. The claim is that their closer watching and managing of the funds will enable them to beat the stock market. Unfortunately, even though they charge higher fees for the “benefit,” they cannot continually beat the indexed funds.
As it can be seen in the above example, it is no wonder that financial companies want to get as many people as possible investing in their institution by putting their retirement savings with them. This is clearly a lot of money for them for each person that decides to save money for retirement
You can save more money for retirement by choosing to invest in the indexed funds, rather than in the actively managed mutual funds. The difference can be at least a full one percent more that you keep in your pocket.
Companies Favor Wealthier Clients
Fool.com observes that companies such as Brightscope lists some of their top investors. It seems that the best 401(k) plans are designed to benefit employees who are relatively well off. Marathon Oil was listed as the top company. They gave their employees 100 percent matching funds, up to seven percent of their salary. The company contributed an average of $23,000, and employees were able to add an additional $15,000 – which means that they were paid quite well. Of course, this means that from larger investors, the financial companies will receive more money in fees.
Advertising Is Not Always Correct
Being knowledgeable about how to manage your own retirement funds can help you save more money in the long run. Companies offer a lot of advertisement for retirement plans, but they do not necessarily deliver what they promise. After all, there is so much money at stake, that they simply want you to start saving money with their company. Good promises on paper do not ensure that they have your best interests at heart, and that they manage your money well. You will have to look at how well they performed in the past, and get some online research into the company.
Choosing to go with financial companies that you have researched well, can enable you to save many more thousands of dollars. While it is not necessary to try to manage your own funds, knowing how to invest, ensuring that your allocation of assets is good, will enable you to save more money over the long run.