Fixing a Broken Retirement

The state of Americans' retirement preparation is shocking. Why is this, and what can people do about it?

PBS ran its Frontlinedocumentary "The Retirement Gamble" a few years ago, and it's still pertinent. It's hard to watch this program without a sense of horror at the way our retirement plan system is rigged to rip off Americans struggling to save for their later years after working.

Here are the key points in "The Retirement Gamble." Read them and think about what you can do to shore up your retirement plan:

1. The majority of Americans close to or in retirement don't have enough saved to cover a lengthy life as a retiree. And they don't have any ideas about improving their situation.
2. The retirement systems - chiefly, 401(k) and 403(b) plans - bilk billions of dollars from Americans in the form of fees. Plan documents deliberately hide some of these fees in fine print.
3. U.S. government attempts to clamp down on runaway retirement plan fees have met with mixed reaction in Congress, thanks to successful lobbying efforts by the financial services industry, such as JP Morgan Chase and Prudential Financial.
4. Americans are confused about the critical difference between a fiduciary and a non-fiduciary retirement advisor. The former, such as fee-only Registered Investment Advisors, are required to put clients' interests before their own interests. Brokers, however, adhere to a lower suitability standard - as long as a product seems "suitable," the broker has done his or her work. (My firm is an RIA.)
5. Periodic market swoons and fees hammer many retirement plan participants, who ignore how they invest. One interview on the program featured a retired couple, both teachers, who had an excessive concentration of their retirement money in dot.com stocks; their account plunged more than two-thirds in 2000. Agents circulate in teacher's lounges and sell the educators "tax-sheltered annuities," neglecting to tell them they are handcuffed to punitive redemption penalties, misleading return projections and high fees.
6. John Bogle, the Vanguard Investments founder, pointed out that a "little" 2% annual fee will erode a whopping 63% of what clients could earn in their retirement accounts that booked a 7% annual average return (pre-fees). In other words, what he called "the tyranny of compounding costs" whittled the $100,000 you should have down to a measly $37,000 over 50 years of investing. JP Morgan Chase and other brokers who run expensive retirement plans come across poorly when they responded to this by saying they weren't familiar with these numbers, each retirement client has different needs, etc.
7. Sadly, there don't seem to be enough improvements to retirement plans to avoid having Americans work well into their 70s, if they can, or run out of money in retirement.

So what can you do? Here are some strategies:

• Utilize tools such as www.brightscope.com to verify the quality, including cost, of your plan. If your plan is rated poorly, consider only saving up to the amount of your 401(k) contribution that your company matches.
• If you qualify, based upon your adjusted gross income, save additionally in an individual retirement account. Look for low-cost mutual funds (e.g., Vanguard) so you can save 1% to 2% per year in fees.
• Consider opting out of your plan if you have no match. You lose the up-front tax-deduction, but you may end up with more in hand by investing in low-cost mutual funds with after-tax money. Run these numbers with a professional since your retirement horizon and tax bracket can affect outcomes.
• Rollover old 401(k) or 403(b) plans from previous jobs to eliminate ongoing plan fees. Only consider retaining old plans if you have an exceptional deal, like 3% or higher guaranteed interest in the current low interest-rate world.
• Postpone taking Social Security benefits as long as possible. Seek professional help before making Social Security decisions.
• Consider downsizing by moving to a less expensive part of the country if you are at risk of outliving your assets. Sadly, some places - such as New Jersey, where I live - are relatively unattractive for retirees due to high taxes (including state estate tax) and high living expenses. New York may not be much better.
• Save, save and save some more.
• Get professional advice about your retirement strategy from a qualified advisor.

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Eve Kaplan, CFP, is a fee-only advisor in Berkeley Heights, N.J.Kaplan Financial Advisorsis a Registered Investment Advisor in New Jersey and New York.AdviceIQ delivers quality personal finance articles by both financial advisors and AdviceIQ editors. It ranks advisors in your area by specialty, including small businesses, doctors and clients of modest means, for example. Those with the biggest number of clients in a given specialty rank the highest. AdviceIQ also vets ranked advisors so only those with pristine regulatory histories can participate. AdviceIQ was launched Jan. 9, 2012, by veteran Wall Street executives, editors and technologists. Right now, investors may see many advisor rankings, although in some areas only a few are ranked. Check back often as thousands of advisors are undergoing AdviceIQ screening. New advisors appear in rankings daily.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.