There's a good chance many people reading this are not worried about their retirement. And there's a really good chance many people should be worried, but the entire retirement-fund industry is so needlessly convoluted that it leaves them zoning out at company meetings on the topic.
Total U.S. retirement assets have reached $24 trillion — and 36 percent of all household financial assets are retirement assets, so we're certainly not talking about chump change. And yet, as John Oliver pointed out on Last Week Tonight, there's still far too much confusion out there about financial advisers and the role they play in helping us invest, as well as the often obscene amount in fees we pay to invest our savings.
First, a bit about financial advisers, or wealth-management advisers: Most are not in this because your happiness and wealth are worth more to them than all the gold in Nevada. In fact, a number of them have the sort of job titles that sound important, because no one understands what they actually do, but don't necessarily have the credentials to back it up. More importantly, Oliver says, a lot of them are paid on commission, which means you should do your research before following their investment advice. Some financial advisers, for example, push hard for annuities, which pay out income each year, even when they're not in a person's best interest. They do this because they stand to earn a generous commission from the deal.
There is an exception to the rule: If your adviser is a fiduciary, he or she is supposed to act in your best interest, which Oliver points out is beyond odd. "It's like finding out only some restaurant waiters are prohibited from ejaculating into your food," he said.
If you work at a company that offers a 401(k) plan, you should, of course, take it. But Oliver says even these can be a "goldmine for financial service companies," because there are a lot of fees you may be unaware of associated with your 401(k). Thanks to compound interest, even small fees can add up. Oliver provides one example of a plan that offered a 7 percent return and a 2 percent annual fee — over 50 years you'd lose almost 2/3 of what you would have had. "They're tiny, they're barely noticeable and they can eat away your fucking future," Oliver said of the fees.
There are two types of savings plans: low-fee index funds, and actively managed funds where your money is being more aggressively managed by an aforementioned financial adviser. But the problem, Oliver says, is many financial managers find it difficult to consistently beat the market. "Most managed funds do no better, and often do worse, than index funds," he said. "The entire retirement-fund industry is a potential minefield."
To prove this point, Oliver and his team reached out to Avalon Televison, which found a retirement plan from John Hancock for their 35 employees. Their researchers discovered that it carried with it a 1.69 percent fee before a $24 per-participant fee. A broker was hired — one who would cost employees $1 million in fees after 50 years. In case you're wondering, he was not a fiduciary.
After much back and forth about the costly plan, the broker finally relented and sent over an Excel spreadsheet that showed how their fund fees could come down — but he made an error that was off by more than $10 million. They ultimately did come down in fees, but Oliver says their employees will not be maintaining relations with either John Hancock or their very expensive broker.
The good news is that the Department of Labor issued a rule that all advisors will have to become fiduciaries starting next year. While this won't suddenly turn us all into money-saving machines, at least we can rest knowing they'll be fewer people out to screw us.
Oliver's takeaway segment, starring the very funny Billy Eichner, offered five simple rules you need to keep in mind when saving for retirement:
- Start saving now. Like this very second — click out of Rent the Runway, and go bag up everything not nailed down so you can sell it through Etsy.
- Low-cost index funds are the way to go.
- If you want an adviser, ask if they're a fiduciary — if they aren't, run.
- Shift your investments from stocks to bonds as you grow older.
- Try to keep your fees under 1 percent.
And, just for good measure, Eichner reminded us to remember to die. It may sound morbid, but can you imagine the inner peace and quiet when you no longer have to worry about money?
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