Harsh Reality
With our aging population‚ retired parents without adequate retirement savings are facing the prospect of asking their children to take them in. In fact‚ the news media is reporting that a vast number of retirees will out-live their money. You’ve just got to ask yourself‚ “How are these people going to make it when the money runs dry?”
Women are at most risk‚ despite previous wealth‚ with women age 65 twice as likely to live in poverty as compared to men of the same age.¹ Without a change in our savings rate‚ which has sharply declined to around three percent‚ many more Americans stand to live in poverty in their golden years.
Americans depend on 401(k) and similar defined contribution plans for their retirement income. At year-end 2006‚ workers‚ in their sixties‚ with at least 30 years of tenure‚ had an average 401(k) balance of $190‚593.² Clearly‚ that number represents an inadequate retirement fund.
Mutual Funds Take a Significant Toll on Returns
The Center for Retirement Research at Boston College conducted a study which found that the design and pricing of equity mutual funds held in retirement accounts take a significant toll on the returns.³ The study’s conclusion: By shifting the investment options of a retirement plan from mutual funds to exchange traded funds (ETFs)‚ the average 401(k) plan can reduce its annual fees and trading costs by 0.70 percent or more of assets.
This shift not only boosts the participants returns by the cost savings‚ but it also allows 401(k) plans to economize on the trading costs and avoids a participant paying a share of the trading costs of other‚ more active investors. This potential savings in explicit fees and trading costs represents about 10 percent of the real return on domestic equities and can increase the value of a participant’s accumulated savings in these assets by nearly one-eighth at the end of a 35-year career.
In order to add low cost exchange traded funds as investment options in 401(k) plans‚ the undertaking required the development of technology which could trade and record-keep ETFs in 401(k) plans. Invest n Retire® designed a recordkeeping system and trading platform (patent pending) which cost-effectively trades ETFs in defined contribution plans. The system allows employees to own whole and fractional shares of ETFs in their retirement accounts.