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Published on April 18th, 2013 | by Healthy Gay Lifestyles

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Financial Solutions for Gay Men…Retirement Planning Cost

by Steve Schullo & Dan Robertson

When Steve and I committed to our relationship in 1975 we accepted the challenges of merging schedules, hobbies, cooking, managing the TV remote, morning rituals, meeting each others’ friends: many are the same issues all couples face. We would not have gotten together if either of us were a spendthrift. We valued frugal hobbies — because of Steve I ran in three marathons. Now that is true devotion.

Moving into our first apartment presented a problem: how do we split our living costs equitably, or at least in a manner we would both be comfortable with. No one wants a lingering financial issue to nag the mind, to fester in stressful times. We decided to split the rent and utilities based on the percentage of cash income we each brought home every month. There wasn’t much to split but this resolved the issue.

We were students then, headed toward stable incomes, and then into satisfying educational careers. I wrote job training grants for GLBT and people with disabilities, sometimes both. Steve taught for the Los Angeles Unified School District for 24 years, most often in the classroom but also in computer labs and as a technology advisor.

For retirement planning, we each had our 403(b) plans, the public and non-profit retirement program, similar to 401(k) for the private sector, without matching contributions by our employers.

At first we bought expensive tax sheltered annuity plans from sales people who frequented our workplaces. We had no idea we were paying annual expenses, commissions, needless insurance costs, marketing costs, front-end or back-end charges, trading or brokerage expenses. The promised earnings in these contracts decreased for no apparent reason. Annuity contracts are notoriously complex and are written to protect the insurance industry and Wall Street’s interests.

We subsequently learned seventy percent of investors don’t know their investment costs. We didn’t know either. When asked, my salesman said, “The company pays me.” I took him at his word.

The financial industry is beginning to reach out to our community. Why? Gay men and couples have discretionary money and the industry wants to manage it for us, perhaps just as they have done for teachers. This is a heads up to “follow the money.

Controlling investment costs is vital. Costs can reduce a nest egg by 1/3 over a working career. For example, $10,000 a year earning a conservative 6% annually over twenty-five years with fees of 2.25% vs. .25% will produce a third smaller nest egg with the 2.25% annual fee. Who pays that much? With an annual fund expense rate of 1%, plus a .25% marketing charge (12 b(1) fee) plus a 1% charge to manage your portfolio, you’ve just lost over $142,000 at the end of 25 years (“assets under management,” 1% -AUM- fee is standard for most financial advisors). At that point you are paying $9,400 off the top each year — not an attractive option. And yet the seventy percent who can’t nail down costs are victims of our own trusting nature, possibly complacency or cultural and excessive consumer distractions. The more reasonable cost at .25% would result in a $560,000 nest egg at an annual cost of $1,400.

When we looked at costs we realized we had made a big mistake, risking our money for products which were leaching profits from our efforts, and going into Wall Street middlemen pockets. Annuity returns and costs are buried in the small print. Fortunately we learned later 403(b) plans are not limited to annuities but may include mutual funds, many costing under .75% (75 basis points) and some excellent funds costing under .25% annually.

With over 8,000 mutual funds available the casual investor sees whelming options. How does one screen the myriad to avoid high costs, unnecessary risk, and to rest easy–able to ignore media hype and obtain a consistent return. Expensive doesn’t mean better long-term returns. When it comes to funding your nest egg a diversified long-term plan eschewing popular manias will help keep you sane.

All investment and retirement plans charge fees. It is the financial industry’s right to try their best to make a profit. This is your right too. For starters, never pay commissions for investments. Now, is that complicated? Of course not! This column will share how to build a rest-easy balanced portfolio that tethers risk for the long term, holds down costs, offers broad diversification with help finding a fiduciary advisor, one who keeps your financial interests ahead of their own. Best of Fortunes.

__________________

Steve Schullo and Dan Robertson, authors of Late Bloomer Millionaires (Amazon)

 

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2 Responses to Financial Solutions for Gay Men…Retirement Planning Cost

  1. Christian Aldridge says:

    I read this article and it is a good start for advice on managing the cost of your retirement investments over the long term. The biggest critique I have for the article is that cost is not the only factor one should consider. Different people find different value in different methods of investing. For some, an expensive full service broker is exactly what they need and they usually have the funds to support that level of service and professionalism. For most, it’s true that a lot of investing can be done on one’s own and we should all be doing our research to determine the fees associated with those investments. People who have 401(k) programs at work still need to look into the plans and find out what their investment options are and how much each costs within the plan. The website ShareBuilder is a great resource for a do-it-yourselfer who is comfortable learning about different investment options and making their own choices. The commission structure there can be as low as $4 per trade which isn’t bad. In the end, just like everything else the reality is “buyer beware.” A broker, bank, or investment company has a right to charge for their services so just make sure you are getting the value you need and you aren’t overpaying for your investments.

  2. Christian,
    First thing we suggest to all investors is to stay the heck away from the brokerage firms and never, I repeat, never pay commissions. If people need help, and many do, they can find fee only ethical advisers from the National Association of Professional Financial Advisers. Go to their website and type in your zip code and bingo, you get a list of advisers that will not charge commissions or fees that are related in any way to the decision to invest in a fund. Some are gay and most, if not all, are gay friendly.
    Our article was about costs and we know that costs are the primary factor to consider because so many folks miss it. We did in the early years of our investing experience. (The secret is that is the way the financial industry wants it. Did you see us in the Frontline Special last month, The Retirement Gamble, its all about costs).
    Of course costs are not the only thing to consider because next is asset allocation, passive strategy investing across the broadest asset classes available–worldwide, have a bond allocation approximately equal to your age all overseen with that fiduciary financial fee only adviser from NAPFA to help you stay the course when the market gets shaky (and it will from time to time).
    Bogleheads.org is a great place for DIYs. Just reading the many topics and posts for a day or two will convince many newbies that learning to invest is not that complicated or difficult.
    Have a great day,
    Steve

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