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My mom's 401K
Old 07-22-2013, 09:15 AM   #1
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My mom's 401K

Hello all! I was hoping I could pick your brains a bit and get some advice for my mom.

My mom recently told me about her retirement account at ING, and I was taken back at the amount she had (just below $150K). She will qualify for SS in the Fall, so that should help her sustain the savings for the short term, but this isn't even what I need to ask the group advice for.

She informed me that she uses financial advisors to run her ING account and that they charge her approximately $600 a year to run it. I didn't get any specific info from her on her retirement account (investments), or her rate of return, but I didn't think it was necessary for her to have people run her account.

So my question to the group is, should someone that knows very little about investing have financial advisors run their account, or should I just sit down with her to review the available funds to invest in and see which ones look the most promising (diversification, bonds vs. stocks, rate of return, etc..)? Does anyone have good or bad experiences with financial advisors?

Thank you in advance for any assistance. It just frightens me to think about my mom struggling
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Old 07-22-2013, 09:29 AM   #2
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While I personally would DIY, 0.4% doesn't seem outrageous.

Is she retiring soon? Does the 401k include any stable value funds that might be useful as her fixed income component of her AA?

If she is retiring soon and the 401k doesn't provide any attractive investment alternatives I would be tempted to steer her to transfer her 401k to a Vanguard IRA and invest it in Wellesley as a KISS solution.

If her health is good and longevity is in the genes, she might be better off to delay SS and live off the part of her 401k for a while and then get a higher COLAd SS check for the rest of her life.
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Old 07-22-2013, 09:37 AM   #3
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$600/$150,000 = MER of 0.4%, which seems very reasonable.

Here are ING's MERs and performance data for its US funds.

Prices & Performance - INGFunds.com
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Old 07-22-2013, 09:51 AM   #4
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pb4uski - She is semi-retired and w#rks part time. Her health is fairly good, but she has filed the SS paperwork already and is quite adamant that she needs the money now. I'll just say that I agree with her that she should take SS early, because her financial situation isn't the healthiest. Generally, I agree with delaying SS, but my mom just needs it now.

I will have to review her funds with her (thank you Meadbh!) and what they look like.
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Old 07-22-2013, 12:03 PM   #5
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It sounds like the $600 ( 0.4%) is their fee, there is still the expense ratio of the fund, right? Look to be generally over 1% from that link.

But if she mostly just has SS, $600 is still $600, and that is significant for her.

pssssstttttt....Wellesley, or a retirement target fund?

-ERD50
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Old 07-22-2013, 12:30 PM   #6
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If your mom trusts the financial advice she is getting, then it may help her stay invested in a volatile market.

There is no way to tell whether the advice is good or not without analyzing what she is invested in.

fd
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Old 07-22-2013, 03:17 PM   #7
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I think I would leave it alone. What if you advise her to not use ING and then whatever she chooses to do loses money? The fee is not that much and she has grown more of a nest egg than you expected her to have, apparently, so she must be happy enough.
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Old 07-22-2013, 05:26 PM   #8
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Bestwifeever, I know; that is a concern of mine too. Actually, I thought she would have a larger nest egg than that. She's aware that she doesn't have much, but she lives pretty frugal and she knows I'm there for her if she needs me.

I appreciate the feedback everyone. I will sit down with her and review her statements to see how the FA is doing and go from there.
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Old 07-22-2013, 06:33 PM   #9
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Bestwifeever, I know; that is a concern of mine too. Actually, I thought she would have a larger nest egg than that. She's aware that she doesn't have much, but she lives pretty frugal and she knows I'm there for her if she needs me.

I appreciate the feedback everyone. I will sit down with her and review her statements to see how the FA is doing and go from there.
Ah, re bolded sentence--I'm sorry, I interpreted it otherwise. Maybe you could show her how $10,000 in a fund like Wellesley would have grown over 10 years vs. $10,000 in her ING accounts and subtract the annual "extra" fee (above the funds' expenses) from the ING total?

Your mom is lucky to have you looking after her.
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Old 07-22-2013, 06:56 PM   #10
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I like that idea. Show her the growth of $10,000 over 10 years for the ING alternative vs Wellesley and the subtract $6000 from the ING total. Then explain that past results are no guarantee of the future and let her make the decision, so you'll be off the hook.
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Old 07-23-2013, 12:21 AM   #11
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I like that idea. Show her the growth of $10,000 over 10 years for the ING alternative vs Wellesley and the subtract $6000 from the ING total. Then explain that past results are no guarantee of the future and let her make the decision, so you'll be off the hook.
That's good, but it's not just the $600/yr - it looked like the ERs were mostly > 1% (which fund is she in?). Even half percent above a comparison fund would be another $750/year (Wellesley is ~ 0.25% ER). And I saw something about Front End Loads on most funds? Of course, those are water under the bridge now, and maybe they were paid long ago with other funds being moved, but if she paid them, it would factor into a side-by-side analysis.

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Old 07-23-2013, 01:36 AM   #12
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ING is an insurance company. It is quite likely her expenses are far greater than .40. Most of those contracts have M&E expense, admin charges, subaccount charges, etc. They used to hide those expenses by showing "units", but now full disclosure has hit and ING has to show all expenses if you ask. I would think her ER is closer to 2% or higher than .40%........
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Old 07-23-2013, 04:28 AM   #13
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ING is an insurance company. It is quite likely her expenses are far greater than .40. .... . I would think her ER is closer to 2% or higher than .40%........

And do remember that if you pay an annual 2% fee over 30 years, the company will retain about 45% of the nest egg and leave you with 55%.

Over a 50 year horizon, the 2% fee will result in the company keeping 2/3 of the returns leaving you only 1/3!

Fees matter, even in bull markets.

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Old 07-23-2013, 08:02 AM   #14
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ING is an insurance company. It is quite likely her expenses are far greater than .40. Most of those contracts have M&E expense, admin charges, subaccount charges, etc. They used to hide those expenses by showing "units", but now full disclosure has hit and ING has to show all expenses if you ask. I would think her ER is closer to 2% or higher than .40%........
The charges you are describing would be in a variable annuity, not in a mutual fund. ING would likely offer both.

If her 401k money is invested in a VA then I totally agree with you but I suspect that is not the case. Possible but not likely. And if so the employer is a dope.
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Old 07-23-2013, 11:32 AM   #15
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Ah, re bolded sentence--I'm sorry, I interpreted it otherwise.
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Maybe you could show her how $10,000 in a fund like Wellesley would have grown over 10 years vs. $10,000 in her ING accounts and subtract the annual "extra" fee (above the funds' expenses) from the ING total?
Your mom is lucky to have you looking after her.

I agree, that's a good idea about comparing the two.

I will have to review the ING documents to see what they are really charging her (and to see what funds she is investing in) . She usually doesn't discuss her financial matters with me, so I was happy that it just came up in conversation one day. She also stated she wants me to review this with her, so it's not just me being nosey
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Old 07-23-2013, 11:32 AM   #16
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And do remember that if you pay an annual 2% fee over 30 years, the company will retain about 45% of the nest egg and leave you with 55%.

Over a 50 year horizon, the 2% fee will result in the company keeping 2/3 of the returns leaving you only 1/3!

Fees matter, even in bull markets.

-gauss
People, these are not fees on an annuity, as this would be much worse, this is on an investing account.

Simple math $100,000 investment grows to $1.1m in 50 years, at 5%, or $2.9 mil at 7%. This is compounded yearly, compounded monthly would be higher. This is roughly 38% - or about 37% if compounded monthly. So keeping 1/3 of your investment over 50 years is a very good estimate.


I usually use the fact that generally a 1% expense in fees of any type, broker or fund fees that could be eliminated, improves the size of your nest egg by 25% over only 30 years.

fd
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Old 07-23-2013, 11:52 AM   #17
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ING is an insurance company. It is quite likely her expenses are far greater than .40. Most of those contracts have M&E expense, admin charges, subaccount charges, etc. They used to hide those expenses by showing "units", but now full disclosure has hit and ING has to show all expenses if you ask. I would think her ER is closer to 2% or higher than .40%........
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People, these are not fees on an annuity, as this would be much worse, this is on an investing account.....
Investing accounts do NOT have M&E (mortality and expense) charges, admin charges, subaccount charges, etc. - these are common to variable annuities.

I'm not sure what kind of investing account you are thinking of. The subjecto f the thread and OP is a 401k.
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Old 07-23-2013, 01:37 PM   #18
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The charges you are describing would be in a variable annuity, not in a mutual fund. ING would likely offer both.
ING does offer both. OP has not stated which is the case.

As far as the employer being a "dope", thousands of employee contribution plans are run by Principal, Hartford, Hancock, ING, Transamerica, etc, and they all are VA products..........
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Old 07-23-2013, 02:06 PM   #19
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Investing accounts do NOT have M&E (mortality and expense) charges, admin charges, subaccount charges, etc. - these are common to variable annuities.

I'm not sure what kind of investing account you are thinking of. The subjecto f the thread and OP is a 401k.
As far as I can see the OP mentions nothing about M&E ... etc charges -- this just appears to be some conjecture along the way.

I was talking about fees basically in any kind of retirement / investing account. When you can reduce your fees by 1% by investing elsewhere, over 30 years you will have an account that is 25% larger - given same investments.

fd
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