Adventures in Retirement Saving Part 2: What not to do

First off, a disclaimer:  Don’t do NOTHING.  Doing something is better than doing nothing.   Satisficing is better than being paralyzed by The Paradox of Choice.  I got this one right!  Yay!

If you’re overwhelmed and have no time, then sure, signing up with the ING guy without asking him in detail about fees or probing him when he side-steps your question on how he gets paid since he’s the only one who cold-calls new faculty is much better than doing nothing.

Which, of course, is exactly what I did.  I went with the first and only vendor who knocked on my door.  I’m not the only one– he visits many faculty who, by experience and training, should be more savvy about these matters than I.  And, in my defense, first year professors are VERY busy.  I knew doing something was better than doing nothing and I figured that I would figure things out later when I had more money and more time.  I have both this summer.

(The other one of us chimes in: I actually don’t like ING for a variety of reasons.  However, I found the TIAA-CREF guy to be very helpful when I threw myself on his mercy.  He had a number of useful tools that helped me find out that I’m actually doing better than I thought.  He also helped me set up another account for additional savings.)

My university has SEVEN potential providers.  Vanguard is not an option.  Two of them only provide annuities, so that leaves 5 different companies to figure out. Of those, 3 or 4 of them provide information online and the remaining must be called for information. I never called.  I never looked at the information, so I never made an appointment with a nice TIAA-Cref person (or Fidelity person or etc.).

The Ing guy stopped by with all his forms.  I asked him for a target-date fund.  Ing didn’t have them yet.  I asked for low-fee index funds, and we talked about percentages.  Some percent large cap, some percent small cap, some percent international, and a small percent in bonds based on the rest of my holdings.  I already had some international exposure through an IRA (back when my risk-seeking father was making IRA choices for me) so we didn’t put any of that in my account, but did put some in DH’s.  I think we ended up with a relatively diversified portfolio and I’ll probably keep something similar when I move over this year.  It pretty well matches a diversified target-date fund for my age.

So what’s the problem?  Fees. Fees will eat your savings alive over the course of your working and retirement life.  Turns out that in exchange for sending around the nice Ing guy, Ing charges an additional 0.7% on top of whatever investments you make.  Individual funds also charge their fees, and each low-cost index fund wasn’t a nice Vanguard fund (those are in Ing’s portfolio, but apparently not available to me), but an Ing fund identical in every way to Vanguard’s except that it charged a fee of 0.75% instead of 0.18%.   That’s 1.45% in fees alone.

How big is 1.45%?  Consider that a common recommendation is to draw down 4% per year in retirement, give or take.  Or that the stock market is predicted to get 7%/year.  Or that savings accounts are currently getting something like 1%/year.  Or that some financial planners charge 1-2% to completely take care of your finances for you.

Or, consider simply that I could get the exact same portfolio for 0.34% from TIAA-CREF, and if Vanguard were an option I could get it for 0.18% instead.  That’s 1.11% more fees/year than my next best option, just for me to not to have to pick up the phone to set up an appointment and for a one sheet desk calendar at Christmas.  (And who knows, maybe TIAA-Cref will send a calendar too).   That difference in fees was somewhere around $450 for me this year, and over $300 for my husband.  $750 would buy a really nice gas grill.  Next year, with regular contributions (and not too much stock market tanking) it would cost me even more.  By the time I retired… oh, it is unthinkable.   It is definitely time to make a change.

Next up:  A long post on how DH and I spent 8 hours together on a recent Friday.

4 Responses to “Adventures in Retirement Saving Part 2: What not to do”

  1. Satisficing as a life philosophy « Grumpy rumblings of the untenured Says:

    […] There is a famous study looking at jam.  People bought more jam when they got to choose between 6 types of jam than when they had to choose between 24 types.  The theory is that when given too many choices, they became paralyzed and rather than optimizing, they made no choice at all.  They’re paralyzed by the paradox of choice.   Not so important when we’re talking about buying jam, but tremendously important when we’re trying to figure out insurance or retirement or any other number of difficult decisions.  Can you blame me for just going with the super expensive Ing guy who came to my door? […]

  2. Carnival of Personal Finance #267 @ Beating Broke Says:

    […] Nicole from Grumpy Rumblings of the Untenured presents Adventures in Retirement Savings Part 2: What not to do. […]

  3. Adventures in Retirement Saving Part 3 « Grumpy rumblings of the untenured Says:

    […] Adventures in Retirement Saving Part 3 July 27, 2010 — nicoleandmaggie And now, the long-awaited conclusion to our series. (Part 1, Part 2) […]

  4. Debbie M Says:

    I started with a socially responsible fund because it sounded so nice and they said you can make just as much money with socially responsible companies.

    They just didn’t happen to.

    I also started only with the maximum amount I could imagine completely losing. Now I realize that I’m only likely to lose half my investments, not all of them!

    I then moved to a small-cap growth fund, thinking it would grow fast. It actually did just fine. But it had some pretty steep fees. And eventually I ended up with too many eggs to have them all in one basket.

    Finally, I’m maxing out my Roth IRA with Vanguard funds. And I’m adding some to a Roth 403(b) with TIAA-CREF fund (no Vanguard available).

    And because of these posts, I checked and I do have Fidelity Spartan funds available to me, so I am going to be doing some additional optimizing in the near future. Thanks!

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