Proposals to create private investment accounts in Social Security will victimize ill-equipped investors, generate huge fees for the mutual fund industry and jeopardize the financial security of millions of Americans
How 401(k) Fees Destroy Wealth and What Investors Can Do To Protect Themselves by Chuck Epstein
Privatizing any aspect of Social Security into private accounts will subject millions of unsuspecting, ill-prepared investors to pay a lot for very little in return,”
Tacoma, Washington (PRWEB) November 03, 2012
The proposed plan to privatize Social Security advanced by Republicans since 2005 will guarantee that younger workers, especially those in the Gen X and Gen Y generations, will pay more in fees and assume all the market risk for their future retirements. They will also become the victims of more sophisticated trading and marketing strategies designed to benefit investment professionals more thasn individual investors.
That’s the prediction from Chuck Epstein, author of the new book, “How 401(k) Fees Destroy Wealth and What Investors Can do To Protect Themselves.”
In the book, Epstein writes abut the dangers stemming from proposals to create private investment plans as part of Social Security advanced by President George Bush in 2005, and later expanded upon by Representative Paul Ryan (W-Wis.) and Sen. John Sununu (R-N.H.), Those proposals would have allowed workers under the age of 55 to invest approximately half their payroll tax contributions into a private account managed by an investment or insurance firm. This privatization plan was also supported by presidential candidate Mitt Romney.
“Currently, 401(k) participants pay about $164 million in fees daily to the financial services industry,* Epstein said. “If privatization plans advance, this figure will increase dramatically, even as more investors get encouraged to chase investment returns or purchase expensive actively-managed, load funds.”
According to Epstein, author of the new book, “How 401(K) Fees Destroy Wealth and What Investors Can Do To Protect Themselves,” the politically partisan calls for privatizing Social Security “will not only increase financial insecurity among investors, but it will be part of the greatest wealth transfer in the nation’s history.
“Privatizing Social Security will effectively expose millions of ill-equipped investors to the mutual fund industry, which is focused on collecting fees, while evading the fact that the majority of fund managers have very little ability to deliver consistent, above-index market returns that would actually help improve their customers’ lives. That explains the sad reality that two-thirds of mutual funds fail to beat their own benchmarks, according to Morningstar,” Epstein said.
In a private Social Security account situation, millions of unsophisticated investors will be paying fees they fully fail to understand. For example, when investors see that a fund is charging a fee of 1%, they fail to see the fee’s cumulative impact. A General Accounting Office study found that over a 20-year period, each 1% paid in investment fees reduces an investor’s end return by approximately 17%. This drawdown is even worse if an investor is also paying their investment adviser an annual management fee of 1% and annual 401(k) fees of 1%. In this situation, an investor’s year-end return is cut by 34%.
“This is just one example of how privatizing any aspect of Social Security into private accounts will subject millions of unsuspecting, ill-prepared investors to pay a lot for very little in return,” Epstein said. “But it will reinforce the existing conflict-of-interest relationships that unfortunately characterizes too much of the investment industry.”
The book is based on the first-hand experiences of author and financial professional Chuck Epstein, who spent over 25 years in the financial services industry, including holding senior editor positions in the futures industry and at two major mutual fund firms.
The book is available on Amazon for $15.95 and Kindle for $9.95. It is 287 pages, with six charts, a glossary and 280 footnotes. ISBN 978-1477657997
*Source: The Week Magazine, April 12, 2012.
