New Protections: Big Deal for Retirement Security

From the AFL-CIO:



Are you worried about having enough money in retirement?

You have a lot of company if you are.  And like most people, you probably want to make good decisions about your retirement money, and would like some help in figuring out how to do that.

Figuring out which investment adviser or stockbroker to trust, however, has been a real barrier to getting advice, and trusting the wrong person has caused real harm to retirement investors.

The good news is that earlier this month, Secretary of Labor Tom Perez announced new protections for retirement investors to ensure the investment advice they receive is in their best interest.

These protections address the estimated $17 billion that retirement savers lose each year because of the conflicted investment advice they get.  They have been losing out because the advice they get is influenced by how much their financial adviser gets paid in commissions and other ways for recommending one investment over another.

At the heart of the new protections are two common-sense ideas.  First, if you’re a retirement investor, your best interests should come first; they should not take a back seat to the financial interests of your adviser.  Second, how your adviser gets paid cannot get in the way of, or conflict with, your best interests.  These new protections mean investors will see more money going to retirement and less to high fees and commissions.

Wondering whether it matters to you?  It should.  The Department of Labor’s numbers show why investment costs are important:  If a worker with $25,000 in an IRA pays annual fees and expenses of 0.5 percent for 35 years, the account could grow to $227,000 at retirement, assuming decent investment returns.  If, instead, the annual fees and expenses on that very same account are 1.5 percent, the account would grow to only $163,000.

That one percentage point difference, 0.5 percent compared to 1.5 percent, is consistent with the degree of underperformance IRA owners getting conflicted investment advice can expect.  Taking the conflicts out of the advice means this worker could end up with about 25 percent more in retirement savings without contributing a penny more.  That’s a big deal, especially at a time when many people are working longer for less.

The new investment advice protections stand, however, for a lot more than just taking back that $17 billion a year in lost retirement money.  For years, there’s been lots of talk about our national retirement security crisis, but little action.  So little action that you might think retirement insecurity is just the way it is.

By rewriting the rules so working people get a fair deal, the Department of Labor has sent a strong message that real change that delivers real benefits to working people is possible.  And that is a really big deal.

Shaun O’Brien is the AFL-CIO’s assistant policy director for health and retirement.


Shaun O'Brien - 4/20/16

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