May 19, 2024

Bucks: The Dull Task of Decoding 401(k) Fees Matters

Carl Richards is a certified financial planner in Park City, Utah, and is the director of investor education at The BAM Alliance. His book, “The Behavior Gap,” was published this year. His sketches are archived on the Bucks blog.

I know it’s been in the news, but if you haven’t seen the recent “Frontline” program “The Retirement Gamble,” you have to take an hour and watch it. I know, it doesn’t sound like as much fun as watching reruns of “Seinfeld.” But sometimes adults have to do things that aren’t fun.

There are so many important points in this show I could talk about. But I want to focus on one narrow but incredibly important thing: Investment fees matter…a lot!

To set this up here, there is a conversation that happens about minute 32 that had me out of my chair I was so mad:

Martin Smith, “Frontline” correspondent: The problem is that these fees are not paid by the fund company. The bill is passed to you and me. Here it is, buried deep in my 401(k) plan documents. It took me about an hour to find the reference.

[On camera] Do you think the industry could do a better job of making people aware of the effective fees on their savings?

Karen Wimbish, retirement executive, Wells Fargo: I think we could make people aware of the effect of every pressure that they have on their accounts.

Martin Smith: What stands in the way of doing that better job?

Karen Wimbish: [laughs] I— what I would tell you is, it’s— sometimes, it’s very difficult to get people to focus on something that seems complicated and dull and boring. So could we do a better job with helping consumers understand all the things that are tied to what they just bought, whether it’s financial services or the riding lawn mower? Yes. It’s too complicated.

Let me repeat one phrase from Ms. Wimbish:

…it’s very difficult to get people to focus on something that seems complicated and dull and boring.

Let’s start with complicated.

It’s true that Wall Street has made it way too hard for us to figure out what we’re paying for the privilege of investing our own money for retirement. And while I don’t want to sound like I’m blaming the victim, the average American adult is likely to think nothing of spending 10 hours a week watching TV, another 10 hours surfing the Web, and another 10 tweeting on Twitter. But then he or she complains that figuring out the expenses in our 401(k) is too complicated and not entertaining.

Please don’t misunderstand me. I know there are hidden fees. I know it’s hard to read a prospectus and the other materials that come when you sign up for a 401(k). I agree that the 401(k) might be a failed experiment, and yes, we need reform and change. In the meantime, it’s what we have. And the benefits of tax deferral are still worth it, particularly if you’re lucky enough to get the rare employer match.

I refuse to believe that the average American adult can’t figure it out.

Now, how about dull and boring?

Yes, taking the time to figure out the lowest fee options in your 401(k) might not be as entertaining as watching football. But does something as important as our retirement have to be entertaining for you to concentrate on it?

This is important enough to just grit your teeth and figure it out. If you think this is dull and boring, imagine for a minute how dull and boring retirement is with no money.

It’s boring in the short term to figure out how to lower your expenses by an amount that appears so small. After all, aren’t we talking about 1 or 2 percent here?

Sounds like no big deal, and in the short term it isn’t a big deal. But as we’ve all heard, it adds up. The compound effect of 1 or 2 percent over 25 or 30 years is huge. It’s worth the time.

Please accept that you have a responsibility to do the hard work of learning to understand this stuff before it’s too late. Like the two retired teachers in “The Retirement Gamble” say:

We never planned on learning about investments, until we got slammed in the gut.

Getting slammed in the gut seems like something we all want to avoid.

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WORLD: France’s Floating Generation

As youth unemployment hits 22 percent, many young people cannot find jobs that get them on the path to being taxpaying, property-owning adults.

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Bucks Blog: Measuring the Achievements of Adults Who Don’t Get Family Financial Help

In this weekend’s Your Money column, I take a look at a group of haves and have-nots we don’t focus on very often: adults who get financial help from their parents and those who do not.

There are many gradations of help here. For some of you, it may be a bit of money or a spare bedroom when you’re between jobs or have just finished graduate school. For others, it may come in the form of covering college costs, down payment assistance or paying for camp or private school for grandchildren.

After writing about the topic this week — and considering Mitt Romney’s insistence that he has inherited nothing — I’ll never look at a résumé or measure someone’s career accomplishments in the same way.

So if you’re someone who has made it with no help at all, do you make a point of saying so to job interviewers and others? And if you’ve had plenty of help along the way, do you think you deserve less credit for accomplishing whatever it is you have achieved?

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Bucks Blog: Housekeepers Beat Teachers When It Comes to Holiday Tips

When it comes to holiday tipping and gifts, workers who scrub our floors tend to get more than people who educate our children, according to a survey from Consumer Reports.

Housekeepers receive a median tip of $50, compared with $20 for teachers, the survey found.

What’s more, the survey found a significant drop from the prior year’s survey in the percentage of Americans who gave something to their child’s teacher: 48 percent, down from 60 percent.

Other service providers tend to get tips of between $10 and $20, the survey found.

More than half of Americans said they didn’t tip anyone, and 38 percent didn’t tip any of the providers asked about in the survey. People who didn’t tip tended to say their budgets were too tight (48 percent), or that it’s not customary to tip some service providers (40 percent).

The survey interviewed 2,017 adults in January 2011, and 1,858 had used at least one of the 15 service providers asked about in the survey. The margin of sampling error is plus or minus 2 percentage points. (A Consumer Reports spokesman says the survey is done immediately after the holiday season while tipping practices are fresh in people’s minds).

Why do you think housekeepers get better tips than schoolteachers? Do people not tip out of concern that teachers will feel insulted? Or is it schools that are asking parents not to give tips or gifts?

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Bucks: Few Americans Feel Better Off Than They Were Last Year

Just 17 percent of Americans say they are better off financially than they were last year at this time, according to a new survey.

Greg McBride, senior financial analyst for, cited the weak economy, sluggish housing sector and a volatile stock market in the results: “Americans’ feelings about their savings, debt and net worth continue to erode,” he said in a statement.’s Financial Security Index fell in October to 92.8 from 93.9 and is now at its second-lowest level of the year. (Any reading below 100 indicates feelings of less financial security relative to 12 months ago.)

The study was conducted in October by Princeton Survey Research Associates International, using landline and cellphone interviews with a nationally representative sample of 1,000 adults. The margin of sampling error is 4 percentage points. The full survey can be viewed here.

In other findings, just 11 percent of Americans are more comfortable with their savings now compared with one year ago, and only 20 percent of Americans are more comfortable with their debt now, a figure that has dropped every month since June.

Nineteen percent of Americans report higher net worth than one year ago, while 30 percent report lower net worth.

The survey found that older Americans have been hit hard by the economic turmoil. Thirty one percent of Americans from ages 50 to 64 feel less secure in their jobs, and 56 percent of those from ages 50 to 64 feel less comfortable with their savings, while only 5 percent are more comfortable.

One bright spot (for waiters, at least): 70 percent said their tipping habits haven’t changed due to the economy.

Do you feel your financial situation is better or worse than it was a year ago?

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Bucks: Living Together Pays Off More for the College-Educated

Living together outside of marriage can carry economic benefits. But the payoff seems to be much higher for those with college degrees than those without, says a new study from the Pew Research Center.

The prevalence of cohabitation has doubled among 30- to 44-year-olds since 1995, even though marriage has long been associated with a variety of benefits, financial and otherwise.

But the Pew study, based on federal Census data, found that when measured by household income and poverty rates, the college-educated cohabitors compared favorably with similar married couples, and were better off than adults without opposite-sex partners.

Cohabitors without a college degree, in contrast, were worse off than comparable married adults and barely surpassed those without opposite-sex partners in terms of economic well-being. (The study focused only on opposite-sex couples.)

Here are some numbers: Among college-educated adults, the median adjusted household income of cohabitors in 2009 was $106,400. That’s a bit higher than that of married adults, at $101,160, and far above that of adults without opposite-sex partners. But among adults without college degrees, the median adjusted household income of cohabitors was $46,540 — well below the $56,800 of married couples, and barely higher than the income of adults without opposite-sex partners ($45,033).

Differences in employment rates and household living arrangements of those with and without college degrees can help explain the gaps in economic well-being, the study says. For instance, cohabitors without college degrees are much more likely than those with college degrees to have children in the home, which affects the ability of both partners to earn income.

“For the most educated, living as an unmarried couple typically is an economically productive way to combine two incomes and is a step toward marriage and childbearing,” the report says. “For adults without college degrees, cohabitation is more likely to be a parallel household arrangement to marriage — complete with children — but at a lower economic level than married adults enjoy.”

What’s your view? Is living together primarily an economic arrangement?

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Economix: Less Interest in Leaving Home

Fewer residents of the world are trying to get out of Dodge, according to Gallup.

The polling organization found that 14 percent of the world’s adults would be interested in migrating to another country if they could. That is down from the 16 percent of adults with the same desire in 2007.

The numbers are based on telephone and face-to-face interviews with 401,490 adults in 146 countries from 2008 to 2010, and 259,542 adults in 135 countries from 2007 to 2009.

Residents of every area of the world except North America and the European Union decreased their desire to emigrate:


The biggest decline was in sub-Saharan Africa, although the share of people there wanting to move is still high: 33 percent in 2008-10, versus 38 percent in 2007-9.

Perhaps these declines are signs of improving economic and political conditions in the developing world. Gallup’s analysts, however, suggest that instead the trends may be explained by greater economic uncertainty worldwide, which would make emigration riskier than usual.

For those who did say they wanted to leave their homelands, the most desirable country to move to is the United States, where about a quarter of emigrant-wannabes would choose to land. The next most pined-for destinations are the United Kingdom and Canada. The top non-Western destination, a few places down, is Saudi Arabia.


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