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another less considered factor is fund fees. while the 4% rule is 96% true most of the time the fact is the studies dont include fund fees.
with a 50/50 mix the actual success rate drops from 96% to 84% with 1% fees and as low as 65% success rate with 2% fees. that can also increase the amount you need to save for a high success rate.
I don't think these calculations for 2% are very relevant, as I'd think very few people who have the financial savvy to be attempting to calculate a safe withdrawal rate would be paying fees this high. 2%? Who retires early and pays 2% fund fees? You are bringing up silly unrealistic examples when trying to make your point.
I pay fees of between 0.08% and 0.22% on my mutual funds, and I certainly do take that into consideration when studying my potential safe withdrawal rates.
I don't think these calculations for 2% are very relevant, as I'd think very few people who have the financial savvy to be attempting to calculate a safe withdrawal rate would be paying fees this high. 2%? Who retires early and pays 2% fund fees? You are bringing up silly unrealistic examples when trying to make your point.
I pay fees of between 0.08% and 0.22% on my mutual funds, and I certainly do take that into consideration when studying my potential safe withdrawal rates.
2% is an example of just how much fees can eat into our returns as well as success rate
1% fees in many funds is not uncommon. Most are .50 to 1% and throw on another 1% or so in financial advisor fees and your right there.
I also showed 1% as well.
Besides the stated fund expense whats not included in that number are trading fees the fund racks up. These can also be substaintial but are not shown in an expense number.
These are in addition to the fund fees that are not included in many studies results.
It does not matter what the exact number is other then its important to realize many calculators and studies dont consider fees so you may want to consider what your own are into the equation.
Last edited by mathjak107; 12-08-2012 at 07:43 AM..
Have you seen some of the fees on variable annuity products.?
Those are sold like crazy.
The one i analyzed that was pitched to me was an insane amount.
It sounded so good i almost bought it myself.
The 10% guaranteed minimum return for 10 years was a real eye opener. Until you saw the expenses on that plan and learned how it worked.
Some like fidelity appear cheaper but there is no guaranteed minimum death benefit. You need an optional insurance plan for that. On the surface that can make their expense about .75% less than competitors but they are giving you less in guarantees.
There are some decent ones out there and fidelty and vanguard have been bringing lower cost ones to market but they still are not there yet in my opinion.
As you see starting the better deals are turning out to be to good and so they are being closed to new money.
I guess the actuaries in this business didnt didnt get it right after all despite those "credentials"
I do hope they are better with their retirement planning then they are with their guarantee calculations.
Last edited by mathjak107; 12-08-2012 at 08:17 AM..
You can say the same thing about leaving any job that has retirment benefits even pensions. if you leave before your pension is vested you lose it.
at least with the 401k you leave with the part you saved.
while there may be a few 401k's that companies sponser that have higher fees for the most part they are not much higher if your company uses fidelity or vanguard or any of a number of other fund families.
we cant blame the savings vehicle as much as we can blame the lack of interest and knowledge most folks have .
the typical american knows more about sports, their car and refrigerator then anything pertaining to investing or mapping out a financial plan.
im on the board of 401k management at my own company and the people blindley follow each other into hodge podges of things that make no sense.
they then all bail at the wrong times and get back into things at the wrong time and their performance is poor.
on the other hand im drinking from the same well and have done very well .
so its not the vehicles as much as the lack of knowledge.
we use fidelity for our 401k and many of the same funds in the 401k i own outside the 401k as well and the expenses are maybe .25% diifference if that much.
its not just in 401k's that people perform poorly in . look at morningstars invester tracker. they show you what each fund did if you bought in and stayed the course. there are 2 returns given on most morningstar performance data.
the more volatile the markets get the wider the spread gets.
they then show you by tracking the money in and out by small investors what their returns were. for the most part they run 1/3 what the fund actually gets as they try to time things in and out or try to jump iin everything hot that already happened.
the data collcted by ibbotsen and fidelity shows pretty much the same thing.
fidelity said that even the lost decade saw the average 401k balance for those 55 or older who contributed from 1/2 to max jumped from 96k to 216k over a time frame when markets were pretty sluggish .
1/3 was market gains and the rest the employees own contibutions and matching.
thats a huge savings even without much market help .
I had to smile yesterday when the new plan custodian gave the introduction speech and opened the floor for questions and said I was a sophisticated investor ... Far from it when it comes to financial markets.
Did find it odd when several co-workers approached me after the meeting asking for my help... I told them I was the wrong person and the most common response was I was the only one asking intelligent questions.
In my tenure... benefits have steadily decreased or been eliminated and plan administrators change every couple of years with the exception of Hartford... which just bailed on us after 7 years.
I suggested Schwab as a possible replacement... Great-West is the one now taking over.
Also suggested we should have the option to invest in the entire market or segment and precious metals...
Where Hartford offerings where limited to 8 funds... Great-West has about 30 with the emphasis on target funds based on age/years till retirement. The spokes people said several times employees need not do anything... because all the money will automatically be placed in age appropriate target funds.
They also said individual fees for management built into the funds is really not what is important if a fund with a high fee provides a high return.
You were also right in that Hartford is buying it's way out of the 3% cash holdings.
Great-West has a fee schedule and has more things they charge a fee for compared to Hartford... although the management fee is much less.
I told them to sign me up for the max required to maximize the company match... which I learned is still indefinitely suspended.
Last edited by Ultrarunner; 12-08-2012 at 11:22 AM..
Worst comes to worse get your match and invest on your own.
Just use the 401k for income producing stuff since its taxed at regular rates anyway
Kind of what I've been doing with Real Estate for the last 30 years... although, I am invested in some Real Estate partnerships with about 10 others for most of the commercial stuff.
Stopped all 401k contributions when the match stopped years ago.
My friends wife works for a large Pharmaceutical company and they match 150% up to 6% of salary... so, I know it works for some.
If I had it to do over again, I would have put off college and gone to work in Public Safety.
12 from my High School Class took 2 year Admin of Justice at the local community college... 11 are now retired with very nice pensions and the one hold out is a Chief of Police in a local community.
Some have retired and went to work for other agencies.
I thought I would be really smart in get my degree and then benefit from a 4% salary boost from day one... in the two extra years the economy tanked to the worst level since the Great Depression... the local Police Academies were shuttered... so the only way in was to pay your way through a private academy plus invest the time with the hopes of getting hired after graduation... and that is when I bought my first rental home.
It boggles my mind at the pensions and how they have grown... there was a time when most police officers had to have part time jobs if they were the sole income for the family... at least till they made rank.
Here is just one example...
Guy puts in 29 years in the Department plus unused time off and sick leave retires with 30 years credit...
Pension of 180k plus lifetime medical... so about a million dollars in pension every 5 years.
He then gets bored and goes to work for the neighboring agency for another 110k a year presently...
The kicker is my city is always broke...
My father always told us to work for the government... none of us listened.
some places even after the mortgage is paid the real estate taxes can be a fortune . right here long island is like that. even folks with paid off homes cant retire here.
Bingo - NJ is in the same boat as long island, ct is no that much better. The public workers had better start waking up - you can't draw blood from a stone, save now, because promises can be broken. The government isn't going to sink the states on a broken ponzi scheme.
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... Far from it when it comes to financial markets.
