Wednesday, April 17, 2019

Low Investment Costs on Retirement Funds can Save You Money

As people approach retirement, many of them plan to take a conservative approach to handling the money in their 401(k) or IRA.  At the same time, they want to be sure that every penny they have saved over the years can be put to work earning an income for them, with as little as possible going towards unnecessary fees.  What is the best way to achieve those goals?

According to the AARP Bulletin columnist and author, Jane Bryant Quinn, who wrote the book, "How to Make Your Money Last," most retirees do not need to use a broker or financial advisor if  they decide to simply invest their money in a mutual fund and collect the dividends.  They can put their savings into funds with diversified investments, be charged either no fee or very low ones, and still be able to take a hands-off approach to their investing.

When You Should Hire a Financial Advisor

Before we discuss the low cost and zero cost funds which are now available, it is important to point out that if you have a lot of assets, a complicated financial situation, or prefer to be personally involved in choosing individual stocks and similar investment products, you should seek out a financial advisor who can help you put together a comprehensive financial plan and assist you in making investment decisions. In these situations, hiring a financial planner and utilizing their services is a wise choice.  If you decide to do this, expect the advisor to charge you up to 1 percent of the value of your assets annually for handling accounts under $1 million.  If their investment strategy is successful, it can be well worth the money.

When using a financial advisor, be sure to take full advantage of all the services, research reports, and advice the company offers.  You and your advisor should watch your investments carefully, re-balance your portfolio periodically, and make investment changes as market conditions shift.

Low-cost and No-cost Funds are Becoming More Available

For investors who do not want to spend their later years following the stock market daily, the decision to invest in mutual funds is an easier option.  Like a financial advisor, most funds will charge annual fees, which can be as much as 1.1 percent of the amount you have invested.  This will reduce the expected return on your investments.

In the past few years, consumers have discovered that they can do just as well, and sometimes better, by investing their money in low-cost and no-cost mutual funds.

In 2018, Fidelity began to offer consumers a Zero Fee Total Market Index Fund which is invested in a variety of U.S. companies, plus a Zero Fee International Stock Index Fund, another fund which focuses specifically on major U.S. companies, and one which invests primarily in midsize and smaller U.S. stocks.  There is no minimum investment in these funds, so even those retirees with very modest retirement savings can benefit from one of these funds.

In addition to the no-cost funds offered by Fidelity, both Charles Schwab and Vanguard offer a variety of low-cost funds which charge as little as 0.02 percent annually.  Before making a final decision, investors may wish to check out all their choices and talk to the staff at more than one company.  Ask about the minimum required investment, the amount of income their funds have historically paid their investors, the stocks held in each fund, and any other questions you may have.

You may also want to discuss your options with a financial planner, by scheduling a one-time appointment with one who will go through all your options.  Make sure you feel confidant in your decision before making an investment.  

You may also consider low-fee exchange-traded funds, some of which have low minimums and no sales fee.  ETFs, like mutual funds, will mirror the rise and fall of specific sectors of the larger market. They are traded on the stock market throughout the day.  

More Information on Handling Your Retirement Savings

In addition, you may wish to read my recent post on this blog, "Your Retirement Savings Can Last for Decades - Learn How."  That post goes into additional detail about the investment recommendations of Jane Bryant Quinn, and explains the 4 Percent Rule for withdrawing money from your retirement account, so you can assure yourself that your money will last as long as you do.   It also explains when it may be more realistic for some retirees to follow a 3 Percent withdrawal plan, instead. 

While you are at it, order a copy of  Jane Bryant Quinn's extremely helpful book and learn more about how to get the most from your retirement savings.  The name and link to her book is: "How to Make Your Money Last."

If you learn everything you can about handling your retirement savings, invest your money wisely, and avoid unnecessary fees and other expenses, you should be able to maximize the amount of income you will have during retirement, without running the risk that you will run out of money.  Preparing in advance and investing your assets wisely will save you a great deal of stress as you age.

For those who want to learn more about wise financial planning during retirement, Social Security, Medicare, where to retire, common medical problems (including dementia) and more, use the tabs or pull-down menu at the top of the page to find links to hundreds of additional helpful articles.

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