Infographic: What Your 401(k) Provider Doesn't Want You to Know
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What Your 401(k) Provider Doesn’t Want You to Know

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What Your 401(k) Provider Doesn’t Want You to Know

Born in 1984, the 401(k) plan gave regular Americans a way to make tax-deductible contributions to a retirement account directly from their paychecks.

Today, it’s the single most important investment vehicle for most people in the country:

  • 90 million Americans participate in 401(k)s
  • $6 trillion in assets are invested in 401(k)s
  • 51% of employers match a portion of employee 401(k) contributions

The only problem? With trillions of dollars at stake, financial firms have scrambled to get their hands in as many 401(k) cookie jars as possible.

And today, the vast majority of plans are characterized by huge commissions, expensively managed funds, and layer upon layer of additional – and often hidden – charges.

Flying Below the Radar

Today’s infographic is from Tony Robbins, and it uses data and talking points from his #1 Best Selling book Unshakeable: Your Financial Freedom Playbook, which is now available on paperback.

It reveals that although 401(k) plans can be used as crucial vehicles for tax-free retirement saving, 92% of investors admit that they do not have any clue about the fees associated with their plan.

Further, 71% of people enrolled in 401(k)s incorrectly think that there are no fees at all.

The Retirement Savings Drain

Many people are unaware of the types of fees that get loaded onto 401(k) plans – and here are just some of them that get passed to the investor:

  • Investment expenses
  • Communication expenses
  • Bookkeeping expenses
  • Administrative expenses
  • Trustee expenses
  • Legal expenses
  • Transactional expenses
  • Stewardship expenses

How much does this all end up costing?

According to a thinktank report from Robert Hiltonsmith, the additional 401(k) fees can cut down the size of your retirement nest egg by an average of 30% for an average worker earning $30,000 per year (and saving 5%), this ends up being $154,794 over his or her lifetime.

For someone making $90,000 per year, it works out to a whopping $277,000 in 401(k) fees.

Paying to Play

Hidden fees are bad, but this next practice is potentially even worse.

It turns out that most big-name 401(k) providers accept payments from the mutual funds they offer on their plans, as a part of revenue sharing agreements. In other words, many of the funds you get to choose from are not there based on merit – instead, they were the ones that coughed up the money to be there.

Not surprisingly, these tend to be actively managed, expensive funds – some of which even charge a “front-end load” fee of 3% to even buy into.

Why are there so few options to choose from?

  • 93% of 401(k) plans carry under $5 million in total plan assets
  • These are the small and medium-sized companies that make up most of the economy
  • However, they also have the lowest buying power to demand better options for their employees

As a result, most providers offer limited options to their smaller, less lucrative accounts – and the low fee options that are offered are sometimes marked up big time.

For example, one major insurance company offers an S&P 500 index fund for 1.68% annually when the actual cost is 0.05%. That’s a 3,260% markup!

Small Fees Make a Big Difference

How much do these seemingly tiny percentages really hurt savers? More than you think.

Take two people saving for retirement generating the same return – one is charged 1% in fees, and one is charged 2%.

The 1% difference in fees may not sound like much, but through the power of compound interest, it works out to 10 years of extra retirement money!

What to Do About It?

The problems here are systemic, and not any one company is to be blamed. If you want to take action, here’s what you can do:

Examine: Take a look at your plan’s fee disclosures and the expense ratios of mutual funds you’re invested in. If expense ratios are above 1%, you are likely paying too much.

Compare: Look at available fund options and switch to lower fee options if they offer similar levels of performance.

Lobby: If your 401(k) is getting battered by fees, tell your employer. Employers not only have a fiduciary duty to benchmark their 401(k)s, but also to seek the best option for employees.

The journey towards financial freedom is tough enough as it is – and while a 401(k) is a wonderful tool to help you get there, it needs to be used correctly!

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Mapped: 2023 Inflation Forecasts by Country

Inflation surged on a global scale in 2022, hitting record-level highs in many countries. Could it finally subside in 2023?

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2023 Inflation

Mapped: 2023 Inflation Forecasts by Country

This was originally posted on Advisor Channel. Sign up to the free mailing list to get beautiful visualizations on financial markets that help advisors and their clients.

Inflation surged on a global scale in 2022, hitting record-level highs in many countries. Could it finally subside in 2023?

In the above infographic, we look to answer that question using the World Economic Outlook report by the International Monetary Fund (IMF).

Not Yet Out of the Woods

While the IMF predicts that global inflation peaked in late 2022, rates in 2023 are expected to remain higher than usual in many parts of the world. Following the 8.8% global inflation rate in 2022, the IMF forecasts a 6.6% rate for 2023 and 4.3% rate for 2024 based on their most recent January 2023 update.

For the optimists, the good news is that the double-digit inflation that characterized nearly half the world in 2022 is expected to be less prevalent this year. For the pessimists, on the other hand, looking at countries like Zimbabwe, Venezuela, Turkey, and Poland may suggest that we are far from out of the woods on a global scale.

Here are the countries with the highest forecasted inflation rates in 2023.

Country / RegionProjected Annual Inflation % Change 2023
🇿🇼 Zimbabwe204.6%
🇻🇪 Venezuela195.0%
🇸🇩 Sudan76.9%
🇦🇷 Argentina76.1%
🇹🇷 Turkiye51.2%
🇮🇷 Islamic Republic of Iran40.0%
🇱🇰 Sri Lanka29.5%
🇪🇹 Ethiopia28.6%
🇸🇷 Suriname27.2%
🇸🇱 Sierra Leone26.8%
🇸🇸 South Sudan21.7%
🇭🇹 Haiti21.2%
🇬🇭 Ghana20.9%
🇵🇰 Pakistan19.9%
🇳🇬 Nigeria17.3%
🇾🇪 Yemen17.1%
🇲🇼 Malawi16.5%
🇵🇱 Poland14.3%
🇲🇩 Moldova13.8%
🇲🇲 Myanmar13.3%
🇭🇺 Hungary13.3%
🇧🇾 Belarus13.1%
🇰🇬 Kyrgyz Republic12.4%
🇬🇳 Guinea12.2%
🇲🇳 Mongolia12.2%
🇪🇬 Egypt12.0%
🇦🇴 Angola11.8%
🇰🇿 Kazakhstan11.3%
🇸🇹 São Tomé and Príncipe11.2%
🇷🇴 Romania11.0%
🇺🇿 Uzbekistan10.8%
🇦🇿 Azerbaijan10.8%
🇹🇲 Turkmenistan10.5%
🇸🇰 Slovak Republic10.1%
🇨🇬 Democratic Republic of the Congo9.8%
🇿🇲 Zambia9.6%
🇪🇪 Estonia9.5%
🇲🇪 Montenegro9.2%
🇧🇩 Bangladesh9.1%
🇬🇧 United Kingdom9.0%

While the above countries fight to sustain their purchasing power, some parts of the world are expected to continue faring exceptionally well against the backdrop of a widespread cost-of-living crisis. Many Asian countries, notably Japan, Taiwan, and China, are all predicted to see inflation lower than 3% in the upcoming year.

When it comes to low inflation, Japan in particular stands out. With strict price controls, negative interest rates, and an aging population, the country is expected to see an inflation rate of just 1.4% in 2023.

Inflation Drivers

While rising food and energy prices accounted for much of the inflation we saw in 2022, the IMF’s World Economic Outlook highlights that core inflation, which excludes food, energy, transport and housing prices, is now also a major driving factor in high inflation rates around the world.

Drivers of Inflation
What makes up core inflation exactly? In this case, it would include things like supply chain cost pressures and the effects of high energy prices slowly trickling down into numerous industries and trends in the labor market, such as the availability of jobs and rising wages. As these macroeconomic factors play out throughout 2023, each can have an effect on inflation.

The Russia-Ukraine conflict and the lingering effects of the COVID-19 pandemic are also still at play in this year’s inflation forecasts. While the latter mainly played out in China in 2022, the possible resurgence of new variants continues to threaten economic recovery worldwide, and the war persists in leaving a mark internationally.

The confluence of macroeconomic factors currently at play is unlike what we’ve seen in a long time. Though the expertise of forecasters can give us a general understanding, how they will actually play out is for us to wait and see.

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