Saving for retirement means navigating a potential minefield of high fees and bad advice. Billy Eichner and Kristin Chenoweth share some tips.
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money you know the thing everyone likes to think they're good with despite the evidence provided in every episode of the Suze Orman show Tina what do you want to buy hi Suze thanks for taking my call I'd like to buy a Mercedes s550 it's about $1,400 a month that is true you are denied oh I want to get away the time to believe p.m. bag so Jenai it's not even funny I'm gonna deny you again I would like to buy a study abroad in Iceland I want to go to the famous elk school and weigh Kovac and get a certification as an Elsa Potter here's the thing I'm denying you yeah of course is because no one should be spending $4,000 to get an elf spotting qualification in fact if you go to last week tonight calm right now you can print out a free official elf spotting certificate which I promise you is every bit as valid as the most expensive elf spotting education now go spot some elves now what one of the big reasons though Suze Orman denies so many people is because she thinks we should all be saving for our retirement and before we go any further it is important to acknowledge there are people who just do not have the money to do that for systemic reasons that we've addressed on this show before and will doubtless address again on giannios sad tastic 'el circus of misery and math but tonight let's talk about those who can save for retirement the target audience for ads like this we ask people a question how much money do you think you'll need when you retire then we gave each person a ribbon to show how many years that amount my last it's trying to like pull it a little further yeah I was trying to stretch it a little bit more got me to 70 years old I'm gonna have to rethink this thing that's that's actually a pretty creepy ad because it's basically people walking towards the date of their own death the only way could have been creepy is if at the end of their ribbons it said exactly how each person was going to die but look it is true it is true that as as we all live longer you should absolutely say for retirement if you can and many do we currently have around 24 trillion dollars sitting in retirement assets and that figure doesn't even include the wealth we have in stock piles beanie babies so let's call it 24 trillion and 32 dollars and a lot of that money is in the hands of financial services companies so let's talk a little about how they work which I know sounds boring but as a favor to your future self it is worth watching this for 20 minutes because you could easily make small mistakes which could seriously cost you down the line so let's start with financial advisors they are the wholesome friendly faced experts that you see in apps like this one think chase wait that is a clear example of deceptive advertising because nobody invites their financial advisor to a wedding if cousin Barbara finds out that she didn't get an invite but your chase guy did she's gonna flip her on you but there is something you should know about financial advisors even their name means less than you might think the Financial Industry Regulatory Authority warns customers to be aware that Financial Analysts financial adviser financial consultant financial planner investment consultant or wealth manager are generic terms or job titles and may be used by investment professionals who may not hold any specific credential so financial analyst is just a fancy term that doesn't actually mean anything sort of like brand ambassador or the John Oliver effect meaningless completely meaningless but even many well credentialed financial advisors are paid on Commission so if they recommend something for you it may be because they stand to make money in fact sometimes they're actively incentivized not to act in your best interest take annuities now certain types those can be very complicated investment products that have high fees and would only be appropriate for certain types of portfolios but some financial advisors push them hard just look how Suze Orman reacts when a caller who had just inherited $80,000 asked for some advice we have talked to a financial advisor and he recommended that we put it in an annuity I knew it I was go before you said that I was gonna say wait wait let me tell you I can tell you what the financial advisor said today did that advisor also say to you that if you put that $80,000 in there I'm gonna make about $4,000 of commissions did he or she happen to tell you that as well oh he or she thank you Susie Orman for pointing out disingenuous financial swindlers can be women too hashtag lady crimes hashtag feminism and brokers pushing annuities may not just be getting money last year Elizabeth Warren released a report on sales perks in the annuity industry ranging from free cruises to luxury watches – and this is true this tacky Super Bowl style ring which is absolutely ghastly but I guess at least it makes it easy to spot brokers that you shouldn't work with hey nice ring I'll win but I'm gonna guess that you didn't get that playing running back for the Green Bay Packers now generally it is currently legal for financial advisors to put their own interests ahead of yours unless and this is interesting they are what's called a fiduciary because not all financial advisors are bound to act in your best interest but fiduciaries are which is a bit weird it's like finding out that only some restaurant waiters are forbidden from ejaculating in your soup why is it up to me to ask you which kind you are I'm sending this chowder back I'm not risking it you take it back but financial advisors are just one part of this if you are lucky your job offers a 401k retirement plan and if it does you should probably take advantage of it but you should also know they can be a gold mine for financial service companies and while it's not unreason for them to get paid for providing a service there can't be a lot of different fees there are legal fees trustee fees transactional fees stewardship fees bookkeeping fees finders fees and the list goes on and on I honestly wouldn't be surprised if they also had an elf spotting fee but remember thanks your new certification you no longer have to pay it go spot some elves and I look seemingly tiny fees can really mount up thanks to something called compound interest now whenever retirement companies like Prudential mention that it's always as a positive that if you start with a really small investment by the time you're ready to retire it will have substantially grown it's hard to imagine how something so small you can help with something so big but if you start putting that toward your retirement every week let it grow over time or 20 to 30 years that retirement challenge might not seem so big after all holy is it just me or did that last Domino fall really hard that might be the most upsetting commercial involving dominoes that doesn't involve the phrase Kali chicken bacon ranch but but compound interest works both ways meaning while your money add ups adds up your fees can really add up to assume you're invested in a fund that is earning a gross annual return of 7% they charge you a 2% annual fee over 50 years the difference between your net of 5% the red line and what you would have made without fees the Green Line is staggering you've lost almost two-thirds of what you would have had two thirds of what you would have had is gone so think of fees like termites they're tiny they're barely noticeable and they can eat away your king future and one place where your 401k can be full of termites is the funds themselves generally speaking you can choose between low fee index funds which basically just try to match the average returns of the stock market or for a higher fee you can get an actively managed fund with experts who will pick and choose stocks for you trying to beat the market and companies that sell active funds really believe in themselves at MF s investment management we believe active management can protect capital long term active management can take calculated risks active management can seek to outperform because active investment management isn't reactive it's active okay that's not so much a coherent commercial as it is a drinking game where you do a shot every time he says the word active but the problem with active management is that even many Wall Street experts find it difficult to consistently beat the market and there is sometimes embarrassing evidence of this like when a group of professionals were pitted in a stock picking challenge against a cat named Orlando Orlando's method he throws a toy mouse at a grid of companies very scientific last year Orlando's pics returned nearly 11 percent while the prosy gained just 3.5 percent Oh God let's all agree that the wolf of Wall Street would have been way better starring that cat because you know instead of drugs there's a pothole because instead of drugs his downfall would come when someone busts out a laser pointer in a meeting but that cat wasn't a complete anomaly there is growing evidence that over the long-term most managed funds do no better and often do worse than the market it's basically the plot of Charlie and the Chocolate Factory if you stick around doing nothing while everyone around you up you're going to win big and the thing is this is not a secret even some of the people charging those fees know that this is the reality one of the ultimate dirty secrets of the fund industry is that a lot of people who run other fund companies I'm own index funds in their in their own accounts and don't talk about it I'm unless you put a couple beers in them Wow sometimes I invest in index funds might be the least interesting secret anyone has ever died false won't run it's right up there with my favorite movie is the constant gardener and one time in college I got totally wasted and read the entire Wikipedia page for rope so so so don't tell anyone don't tell anyone so so between financial advisors high fees and underperforming active management the entire retirement plan industry is a potential minefield and you need to pay attention and the reason that we know about this is earlier this year we actually decided we wanted to set up a 401k for our employees and you might want to learn from our experience because here's what happened we reached out to the production company behind this show Avalon television and we asked them to take care of it a couple of months later they told us we have your plan it's provided by John Hancock and we said okay fine and we went back to work by which I mean we went back to googling teacup pigs eating ice cream but but then but then in March representatives came to our office and gave our staff presentations on the Nu plan it's the kind of thing no one in their right mind it wants to sit through honestly most of us spent it on our phones googly teacup pig comma top hat comma shopping comma beer and boom boom we hit the jackpot but unfortunately for John Hancock our research is starting going through the documents and started adding up the fees which came to a combined 1.69 percent and that was before we paid a $24 per person per year fee and the fees on our funds so they asked John Hancock why the fees were that high and and we were told that it was normal for a start-up plan and a new company and Hancock gave us a lower number that it would come down to over time when we said okay okay that sounds fine and our researcher said wait no that is not fine that number is still higher than experts have told us that we want it to be look leave this will figure it out why don't you all just go back to googling teacup pigs in teacups or whatever the it is that you do all day and we went oh my god is that a thing that exists and yes it was that was the rest of our afternoon right there meanwhile our researchers took the Hancock contract and sent it to financial experts who flagged an intermediary fee to a broker 1% the first year and half a percent after that and remember that could add up we did some very rough estimates and and with 35 employees contributing just six thousand dollars a year after 30 years half a percent could Apter could add up to roughly a million dollars that number was so high you'll never guess what happened Janice in accounting actually gave us serious Caesar chase one of them she bought cupcakes for the great cooking yesterday and she adopted a kitten she named him tuppence so anyway we asked who the is this broker and he turned out he was a guy Avalon who agreed to pay to help them set up and support our plan and we asked him why didn't you present us with low cost low frills plans like the one from Vanguard and what are we paying you so much for and he said well first of all our plan was probably too complicated for Vanguard and that he did a lot of things for us like acting as our financial adviser although as we now know that term doesn't necessarily mean much in fact if you go to our website right now you can print out a free official financial advisor certificate and there you go congratulations and although our broker has other credentials when we asked if he was a fiduciary he unsurprisingly said no as for his fees he said they would come down and last night he sent us an Excel spreadsheet showing how they could come down as our fund assets grew unfortunately in that spreadsheet he made an error which meant that our funds interest didn't compound correctly and when we pointed that out to him he sent a second sheet showing that his original math had been off by more than ten million dollars which does not inspire confidence in the man who as he repeatedly reminded us was helping us navigate our very complicated plan now our lawyers at this point say that I have to tell you that both the broker and John Hancock claimed their fees would come down that they're competitive within the industry and worthless for the services they provide although you should know we decided early on to pay almost all of the fees for our employees because we were so embarrassed about the situation that we've got them in and we're going to be leaving both Hancock and the broker and I'm guessing off that they've seen this show they will be happy to let us go just just so you know we'll be replacing both of them with that stock-picking cat because he seems to really know his the whole corner telling you this is if you don't pay close attention all of this can really get away from you but here is the good news it doesn't actually have to be that complicated and it might be getting simpler back in April the Department of Labor issued a final rule requiring that all advisors handling retirement accounts act as fiduciaries beginning next year and that is great because the financial services industry fought this rule hard they even launched terrible attack ads you might have seen one like this on TV it's these new regulations they're pushing in Washington that worry me they want to make it really hard to get advice from a financial adviser no more help from an even with our IRA and 401k savings only if we want to pay a lot more I will never get the information we need we're gonna call our senators ok ok to be honest my only takeaway from that ad is that that guy is definitely an it's so obvious it's you need to leave him non-threatening wife character kick him to the curb and while the rule has gone through anyway five lawsuits have been filed by financial services groups attacking it and legislators in the House and Senate have passed a resolution trying to overturn that fiduciary rule although just a few days ago the president did veto it and by the way that is something I think we're probably going to be seeing a lot more off because President Obama's last year in office seems to be moving from bipartisan solution to bye Felisha and and look I am not saying all of this is not complicated we spent weeks just trying to understand our own 401 k plan but for your average person trying to save for retirement it doesn't need to be this confusing the truth is as long as you remember a few key things you're probably going to be fine and we wanted to outline them for you so whenever you are ready or able to save for retirement please come back and replay this video from this exact spot enjoy hi I'm Billy Eichner and I'm here with a bunch of King ribbon and I'm using it to show people how much money they needed to save for retirement look at you oh you're so precocious one tiny thing these are fees that's your record-keeping fee that's your wrap fee that's your monthly participation fee that's your 12b – one fee that fee goes to some middlemen you don't even know about and that's your fee for not knowing about a fee fee and here's what you've got left to retire on try ribbon dancing with this you look like an idiot the problem is that idiots like Karen here make shitty choices when it comes to what to do with their money Karen if you had four thousand dollars would you invest it in your 401k or would you go to the elf school in Reykjavik off school no you plan your furrow 1k idiot the only elf you should be studying is Kristin Chenoweth she's a delight come on out here Kristin Chenoweth really I love home and who wouldn't want to go to Reykjavik okay it's not the Tony Awards go shoo shoo that was Kristin Chenoweth the point is the best advice most experts can give you is to do five things number one start saving now in fact start saving 10 years ago invent a time machine use it to go back and start saving money then kill they be Hitler yes average people like you and let's face it you're very very average should probably just invest in low-cost index funds and leave it alone you should check on it about as often as you Google whether or not Gene Hackman is still alive about once a year and he is he's still alive he's writing novels now third thing if you have an advisor ask if they're a fiduciary if they say no run if they say yes but they're wearing a tacky Super Bowl ring run if they say yes what they're wearing a class ring run that has nothing to do with this I just think it's very strange when a grown man is wearing a class ring because of fiduciary number four as you get older gradually shift your investments from stocks to bonds here's a way to remember it every time they pick a new James Bond gradually switch more of your stocks into bonds then go back to wondering if Daniel Craig is actually attractive what do you think Doris oh he's so pan no no no he's not he looks like a blonde chimpanzee and a tux and you know it oh I wish this was beep finally try to keep your fees like your milk under 1% because just like interest compounds so due fees and even 1/10 of 1% can really cook you like this Kristin watch out oh that reminds me one last tip don't forget to die Billy I'm not dead Kristen you're even shorter now oh stop coughing disgusting excuse me retirements no Christian channels for harmed in the filming of this piece you