By Mark Folgmann
“A Crack in the Wall”
Is this the start of Small 401(k) Lawsuits? We have been talking with small business owners for the last two years about the potential lawsuits that may be lingering over the horizon. A small business 401(k) is not an investment product but rather a delicate income generating machine that will fund our eventual retirement years. Since this is classified as a “real” retirement plan there is a fiduciary requirement that must be met by the people in charge of the plan. Here is where the problem begins, the plan fiduciaries are not taking their responsibilities serious and therefore run the risk of lawsuits by their employees. Until last month the only companies involved in litigation over fees, conflicts of interest or lack of disclosure were large Fortune 500 companies and most thought the small employer ran very little risk. We have now learned that the first small 401(k) with less than 30 employees in Kansas has filed a lawsuit on a plan with under $2 million in assets. This Wichita-based Orthopedic and Sports Medicine office has filed litigation against their advisor, the record keeper and the custodian of the plan claiming that the trio of plan providers caused participants to pay “secret” and “excessive” fees.
Unfortunately this appears to be the one and only way to get employers to pay attention to their plans. We still have the opportunity to save the existing 401(k) but it will take our undivided attention. The excess fees and lack of disclosure are costing Americans between 30% and 50% of their cash flow in retirement. Matt Hutcheson who is the nations best know Independent Fiduciary estimates that the average retiree would increase their eventual income by over $500 per month in retirement if they had a competent Investment Fiduciary overseeing their 401(k). This means the typical employee will have to work an extra 6yrs to make up the high cost of fees within the plan If some of these changes would have happened 25 years ago we would not have anywhere near the amount of senior going back to work and taking service jobs from our young people. This means the typical employee will have to work an extra 6yrs to make up the high cost of fees within the plan If some of these changes would have happened 25 years ago we would not have anywhere near the amount of senior going back to work and taking service jobs from our young people.
By Mark Folgmann
The New Retirement – Solutions Last time we started the discussion about how the old retirement paradigm is dead and why we need to think and prepare for our last stage of life in a new way. We can no longer depend on company pensions and social security to provide our economic base so that we can sit back and relax. The new retirement will depend on the greatest generation in American history making multiple adjustments in order to create ongoing streams of income to supplement their 401(k) s. There are numerous small adjustments that can enhance and create a very proactive and productive lifestyle in our later years.
These are my top six. 1. Save 10% of total household gross income till the day you die, notice I did not say till you retire but till the day you die. The main reason I suggest this strategy is because it will automatically cause you to live within your means and accumulate more money each year of your life. I’ve known people that retired broke but lived long enough to become millionaires. 2. Plan to eliminate your mortgage around the time you start collecting social security. Anyone can get their hands on a mortgage calculator and determine how much extra you need to pay each and every month in order to accomplish this. This will provide tremendous relief and peace of mind throughout your later years. 3. Maintain a well balanced portfolio with maximum diversification. You should start shifting to a higher Allocation of fixed assets 5-10 years prior to retirement and can use your age as a general guide to determine the percent invested in fixed assets. Most people take far too many risks and don’t really understand what it feels like to lose half your portfolio in a rough year. Don’t let this happen to you; maintain your fixed positions in your portfolio. 4. Pay attention to cost. Almost all financial decisions carry heavy cost and you must know what and to whom you are paying this cost. Everything from your checking account, car loan, investment portfolio and insurance program generates fees and commissions for someone other than you. Do your homework and work diligently to reduce your cost over your lifetime. We usually find that when we take on a new client we reduce fees over their lifetime by hundreds of thousand of dollars. Jack Bogle the founder of the Vanguard group refers to this as the tyranny of compounding fees. 5. Manage taxes throughout your retirement because we find that today many retirees pay taxes than when they worked. There are two main reasons for this which are distributions from 401(k) s or IRAs and the loss of deductions because children are grown and hopefully no mortgage expense. Many are also taxed on their social security up to 85% and before you know it your quarterly tax bill is quite daunting. We find with proper tax planning we can keep most retirees in an effective tax rate of 5% or less. 6. This one is my favorite because it allows you to stay productive and active till the day you die. Streams of income using your unique skills and abilities you have developed over your lifetime of learning. Don’t wait till you want to leave your employer to add additional income streams, these should be learned and established by the time you want to slow down and live life on your own terms.
My personal goal is to create and establish between 6 and 12 ongoing income streams that will last forever and allow me to spend time on things I love like helping the people around me achieve the impossible. Colonel Sanders didn’t get started cooking chicken till he was 65 years old and look how long that lasted. Most of these things are common sense and certainly something our grandparents would teach us. I believe if you will take these lessons to heart and follow through you will create a lifetime of financial peace and well being. Many will want you to believe that this stuff is rocket science but I’ll bet you would agree most if not all these strategies can be accomplished on your own with very little outside help. Good luck and enjoy your “New Retirement”
