Our daily roundup of retirement news your clients may be thinking about.
Some 401(k) participants face hefty fees that can significantly erode their overall returns, according to this article on Forbes. To avoid paying too much fees in the plan, retirement savers should ensure that their plan administrator is a "no-load" fund company and avoid overpriced "house" funds. They should also always check fund disclosures and move their assets from high-cost funds to investments with lower costs.
Clients can boost their Social Security retirement benefits by earning as much as possible, posting at least 35 working years before they retire, and delaying their benefit claim, according to this article on Motley Fool. However, many seniors file for the benefit before reaching the age of 70 because they fear that their benefit payouts would be reduced in the future, they have no need for extra money, or they face enormous debt and poor health. Seniors who start collecting the benefit early are unaware of the consequences of their decision, can no longer find employment at their age, or are the lower-income spouse in the household.
Clients who consider buying a variable annuity are advised to go with caution, as this financial product can be complicated and may carry risks that could write off the expected rewards, according to this article on CNBC. For example, clients face ordinary taxes on the gains that they withdraw the funds from the variable annuity, so they should invest not more than one-third of their retirement savings in the product. "If you put too much into it, you'll have a liquidity problem," says an expert.
Studies have found that paying higher fees does not necessarily translate to higher portfolio returns, writes an expert on MarketWatch. This means that clients should focus on the internal expenses of the funds and exchange-traded funds in their portfolio, as well as the current trading and the costs from managing and rebalancing their portfolio, writes the expert. "My point is not to advocate for the use of ETFs or any particular approach to portfolio management. But I do want to underscore the significant impact that paying attention to the details can have on a client’s long-term financial well-being."
Although a 401(k) loan charges smaller interest rate and interest payments are reinvested into the account, clients could face accelerated repayment, taxes and penalties if they lose their jobs, according to this article on CBS Moneywatch. Clients should consider a 401(k) plan loan their last resort, as it could be a good option to pay off their credit card debt and save on interest.
