EP231:  Are You Gambling With Your Future?

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The time to act is now, because your future is in jeopardy! 

There’s a new epidemic taking root in America, and no… it’s not another virus, but an epidemic of financial insecurity – which is just as terrifying. 

We’re all on the verge of plummeting into poverty at the exact time when we’re supposed to be living our best life – AKA during retirement! 

The way things are going, instead of sipping Mai Tais on your own private yacht, you may be looking at more of a rainwater and raft situation… not as enticing, is it? 

The hard truth is that we’ve all been lied to about the right way to plan for retirement. In this episode, we’ll discover the shocking realities of the looming financial crisis, key warning signs to look out for, and decisive steps to change the course of your future and reroute you towards freedom! 

This crisis is one that will sneak up on all of us, if we don’t take steps to prepare and make changes NOW. So, let’s get to it! 

To illustrate the issue at hand, let’s talk about “The Emperor’s New Clothes” story. 

Well, as the tale goes, we see an emperor who blindly trusts the weavors he hires to make him the finest clothes imaginable. We’re talking glitz, glamor, and all the things – he wants to look his absolute best. 

The problem is, that the weavers actually make nothing at all, and simply lie to the emperor about what he sees, which leads the emperor to parade through his streets completely naked, believing the lies he was told about his fancy new threads. 

This paints a scary picture, right? It’s like how we often believe things we’re told by authority figures, only to find out later that we were duped! 

This brings us to the financial crisis we’re facing now, where trusting people have put their faith in financial gurus and the general public about how to save for retirement, leading them to the edge of financial ruin in their golden years. 

Can you relate? 

Even if you’re not yet facing the consequences of blindly trusting the commonly practiced ways to save for retirement, the revelations you’re about to hear will probably hit close to home. Brace yourself. The truth can be hard, but the strategies you’ll learn in this episode can be life-changing and life-saving. 

So, let’s uncover the real threats lurking in the shadows of the most common retirement savings vehicles – like a 401(k). 

First of all, the fees for retirement plans might seem harmless in the beginning, but over time, they can seriously eat away at your nice little nest egg, leaving you completely vulnerable and exposed when the time comes to retire. 

Now, the fees will vary for different types of retirement accounts, but here are some of the typical fees you’ll see, and what percentages you’re expected to pay. 

First up are the management fees. These fees are paid directly to the fund manager for handling your investment portfolio. For actively managed mutual funds, management fees can range from about 0.5% to 1.5% of assets under management per year. For passively managed index funds, though, the fees can be around 0.02%-0.5%.

Next, we have the administrative fees, which cover the day-to-day operations of managing a retirement plan, like record-keeping, legal, and trustee services. Fixed administrative fees can be 0.2% to 0.5% of the account balance annually, while some are based on the percentage of assets. Sometimes these fees are waived or lowered depending on the size of the investment. 

Another fee to look out for is called the fund expense, which covers the cost of a mutual fund or ETF. Mutual fund expenses range from 0.1% to over 1%, while index funds and ETFs can be lower, between 0.02% to 0.2%.

Fun stuff, talking about fees, isn’t it? The sneaky thing to remember here, is that these fees get paid no matter what – whether your investments are thriving, tanking, or just existing. Keep in mind that the fund manager wins if you win, but also wins if you lose, so your best interests are really not anywhere near the top of their priorities list. 

Here are a couple shocking facts about fees…

A report by the Investment Company Institute found that the average expense ratio for actively managed mutual funds was about 0.67% in 2020, and a study by the Center for American Progress found that a median-income two-earner family could pay nearly $155,000 in 401(k) fees over their lifetime. 

Most people don’t realize the effects of these retirement fund fees over time, and that’s likely due to the total lack of transparency or clarity involved in retirement accounts. 

Sometimes it seems like a foreign language – all the financial jargon, complex terms, and fine print that are literally created to make you confused! Call us crazy, but we don’t think understanding your own investments should require an advanced finance or legal degree, but that’s just our two cents. 

Another danger behind retirement accounts is the illusion they present, leading people to believe they’re headed towards a stable financial future, when the reality is much, much different. 

Have you ever been given a gift that was packaged in a misleading box? Like, imagine unwrapping a pretty, blue, Tiffany’s box, only to find a pair of socks inside. Talk about misleading, right? 

That’s kind of what we’re dealing with in retirement accounts. The reality is often much different than the perception! 

Usually, the guaranteed return on investment is big and bold, while the actual risks and conditions are unclear and hidden. Investors can be easily misled by past results, not realizing that those don’t guarantee future success. 

Then, there’s also the fact that most people assume retirement accounts are backed by the government, making them safer. In reality, that’s usually not the case. 

There’s actually not much protection in retirement accounts at all, leaving investors susceptible to things like market volatility – which can be devastating, especially for people already retired or soon to be retired.  

By then, it’s too late to change course, right? So now is the time to make adjustments to protect your future. Here are some warning signs to look out for, so you know if your own retirement planning is headed for trouble with the dangers we’ve covered so far. 

There’s a common misconception out there that a smaller nest egg will suffice, because people underestimate their future financial needs. But the truth is that about half of Americans can’t afford to save for retirement, and one-third don’t have any savings at all!  

If you’ve heard that building up your savings is not all that important, it’s not too late to spot this red flag for what it is, and start laying the foundation for a better future. 

There’s also an over reliance on social security, leading people to believe that social security alone will save them from poverty. Don’t be fooled, these benefits really aren’t enough to support a comfortable level of retired living. 

You should also be on the lookout for inadequate professional financial advice. There are plenty of predatory financial advisors out there who will take advantage of people on their quest to make a sale, regardless of their client’s best interests. 

It’s important to be aware of generic or sales-driven financial advice in your own retirement planning. 

401(k) and IRA plans are plenty alluring, and seem to be commonly accepted as decent retirement funds, but think about your reasons behind using them. Does being socially accepted make it a good option? 

Think about how the dot-com bubble burst and 2008 financial crisis impacted retirement accounts, and remember that inevitable market crashes pose a huge risk to these commonly used accounts. 

If you think you might be falling victim to any of these red flags, it’s time to up your retirement planning game. You don’t want to be working into your 70’s just to get by in retirement, do you? With life expectancy higher than it used to be, that’s exactly what’s happening for people who don’t heed the signs we’ve been discussing. 

Don’t worry, though. There are simple steps you can start taking now to ensure a better financial future. 

The most important thing to do is to educate yourself! There’s so much misinformation and untrustworthy advice in the financial realm, that taking your financial literacy into your own hands is the only way to really feel confident in your retirement planning. 

It’s also important to manage your own retirement accounts without passing them off to someone else. And that’s not just because someone else will take fees for the service, but also because YOU are the person affected the most by the success or failure of your retirement funds and investments. 

You should definitely be the one in charge of it all, don’t you think? 

Don’t gamble with your future when you can secure it with knowledge and smart financial planning. 

If you want more strategies for building a strong financial future, tune into this episode, we talk about How to Make $8.65 Million in Real Estate!