Ask an author: David Loeper here to answer your retirement planning questions!

[David Loeper]

Originally Posted by jusrme

It is a week later now and the fund given as an example is down to 330.084106 shares now. This would be the Growth Fund of America (RAEGX) with NAV of 30.29 as of yesterday's closing. The 401k is through Diversified Investment Advisors.

Based on this, I'd say that it is likely that the declining share balance is the daily accrual of a per participant administrative fee (if this represents the majority of your balance) OR a 7-15 basis point advisory fee from Diversified Investment Advisors that is not offset by the revenue sharing from their fund selection.

While not as expensive as some of the biggest offenders out there, the funds they list on their website, net of the revenue sharing kickback they apparently pass through to the plan/participants (or use to offset their advisory fee), generally have expenses more than 0.75%...a tiny bit high. The money market fund is about double what is available and the large cap index fund costs about four times what is available in the market.

Are you sure the symbol was RAEGX? In our www.fundgrades.com site we have 14 different share classes for American Funds Growth Fund of America, but no symbol that matches RAEGX.

The closest match we have is RGAEX. Our report card for that fund is available here:
http://www.fundgrades.com/securityreport.aspx?id=92680

I'd write a memo to the administrator simply asking why you have declining share balances each day and if it is to cover various plan expenses/services, request a copy of the contract that these expenses apply.

[Trogador3]

Hello David I'm a complete beginner so please excuse me if this is a stupid question. But I often heard that funds like Vanguard are "no load" funds. Is "no load" the same as "no fees"?

Are funds that are "no load" inherently more trustworthy?

[David Loeper]

Originally Posted by Trogador3

Hello David I'm a complete beginner so please excuse me if this is a stupid question. But I often heard that funds like Vanguard are "no load" funds. Is "no load" the same as "no fees"?

Are funds that are "no load" inherently more trustworthy?

Great question that a lot of people are confused about! All funds have fees, including no loads. All that "no load" means is they do not take a sales charge upfront out of your investment.

No load funds are not all equal by any means though. Many have high fees that continuously come out of your investment return in the form of the expense ratio of the fund. And, there is a lot of misleading information out there.

For example, Schwab advertises their "One Source" no-load, no transaction fee funds. However, to be in that program with Schwab, the fund has to pay Schwab (which comes from the expenses the fund charges against your investment) 0.20%-0.30% a year on assets.

Let's take a simple example like an S&P500 Index fund. The Dreyfus S&P500 Index fund is on Schwab's select list of "no load, no transaction fee" funds. If I look this fund up on www.fundgrades.com (see a report card on the fund here:
http://www.fundgrades.com/securityre...x?ticker=peopx ) I see that this "no load, no transaction fee" index fund has an expense grade of "C+." That's because its expense ratio is 0.50% a year.

The S&P500 Index fund I use in my company's 401k plan is FSMAX (Fidelity Spartan S&P500 Index Fund) and its expense ratio is only 0.07% a year. So, that Dreyfus fund COST SEVEN TIMES AS MUCH! (a report card for the Fidelity fund is available here: http://www.fundgrades.com/securityre...x?ticker=fsmax ) It earns an expense grade of "A" on fundgrades.

What's the difference to you? If you were saving $5,000 a year into each of them for 20 years and the market returned 8%, the Dreyfus fund would have cost you an additional $10,000 in fees, which would be reflected in your balance being that much lower.

Unfortunately, you can't inherently trust the brand name or the "no load label" because there are different share classes for all of the fund companies. Vanguard has a low cost institutional share class like Fidelity does for the S&P500 (VFIAX) that is also 0.07% expense. These lower cost share classes should be the type used in your 401(k) but you won't find them available on any discount broker's no-load, no-transaction fee list because the expenses are too low and therefore there aren't enough fees to pay the broker. Also, they usually require $100,000 minimum investments outside of your 401k.

Vanguard has another S&P500 Index fund that cost twice as much though (VFINX) and Fidelity has an S&P500 index fund with higher costs too.

What it boils down to is you have to do your homework, look at the specific share class expense ratio and understand what it is your are buying & paying for.

You can look up the report card on any fund, including its expense grade free at www.fundgrades.com and I'd avoid funds that have an expense grade any lower than "B-."

[banshe95]

Hello Wise Bread. I bought this book a week ago after reading about these 401k fee bleeders here. Thank you David for helping everyone out.

[David Loeper]

Originally Posted by banshe95

Hello Wise Bread. I bought this book a week ago after reading about these 401k fee bleeders here. Thank you David for helping everyone out.

Good luck in fixing your 401k! I'm sure everyone here would welcome your feedback on the book.

Let me know if you have any questions as you read it and if you need to contact me directly for questions too specific for this forum, there is a "contact" link on the homepage of www.401kripoff.com where you can "email the author" or you can use the private message feature here.

[cmfalken]

Our company 401K is with AllianceBernstein, and while I know the expense ratios for the different funds that I have, is there a way to find the specific amounts that are being deducted and when? They aren't listed on the statements (no surprise!), and I'd like to confirm that other amounts aren't being deducted and/or that the amounts are appropriate. What would you recommend?

[troyte]

Hi,

I have a question regarding pensions. I am a County employee who is eligible for a pension make around $48000/yr. I am eligible right now for 10% of my salary pension, but it could be up to 60% of my final annual salary if I put in another 20 years into the system. How do I plan for retirement. I put now the yearly max in a ROTH per year through vanguard and another $4800 per year in a 403B (non-match) have around $68,000 in retirement funds. I have a 60,000+ mortgage I am trying to pay off early as well? How do I balance my future goals with the present high costs of living and am I on track? Would love to retire at 60. Fill real pinched for money now.

[fooldotcom]

What do you think of the idea of retiring at 62, collecting a reduced Social Security payout for 7 years, investing the money the whole time, then paying it back at 70, and re-retiring then to collect the higher payout? No dependents or spouses are involved. And the SS is not "needed" for living expenses, etc. And there would be no problem writing a check for the payback amount at the proper time. Of course, you "win" if you die before 66 or 70, since you do get a chance at the SS fund you paid into. Thanks for any comments you may have!

[KelR1]

Hello David!

What do you think of a housewife/househusband opening their own Roth IRA? Also, if one is going to start a retirement account outside of an employer-based one but one is also paying a mortgage and paying down debt what is a good amount to contribute at this time?

[sam12587]

Thank you for taking the time to answer our questions.
I have a kinda weird question.
I work for a public school & they take a mandatory percentage of our paycheck out for retirement. For me it’s 170.88 & I make about 25k. I turn 30 this weekend & don’t currently have any other retirement funds.
I was thinking of doing a Roth IRA when I get out of debt but I wonder if it’d be better to put the money in a regular investment vehicle in the event there’s an emergency & I need to get to the money penalty free.
If I stay with my current job for 20 years then I get the average of my 3 highest earning years starting at 65 for the rest of my life. If I leave before hitting the 5 year mark then I get cut a check that’d I’d have to hurry & slap in an IRA. There’s lots of if/then’s in between those two times – between 5 & 20 it’s a varying percent that I’d get upon turning 65 years old. I don't know if I'll stay in this job for 20 years & I'd always wanted to retire as early as I can but I mightbe too later for that to happen..

I’ve been to retirement seminars at work & asked what will happen to our retirement system when a good chunk of baby boomers retire & I’ve been told it’ll stay the same since there will be about the same amount of current employees paying in and retired employees collecting. I’m skeptical about that though
While I realize you can't give exact investment advice I am curious... if you were in my shoes what would you do?? I'm so conflicted & hear coworkers mention what they are doing but I'm not sure what's right for me other then to get out of debt.