Potential Retirement Pitfalls and How to Avoid Them with the Solo 401 k Solution
No one likes unpleasant surprises, especially when it comes to retirement. The Solo 401 k solution can help you avoid the following potential pitfalls:
Restructuring retirement plans
More and more companies are restructuring their retirement plans. Changes like early buyouts, structural changes, or tightening contribution rules all affect your retirement. And the result is often less money in your retirement fund.
In 2012, Verizon employees sued Verizon for transferring $7.5 billion in retirement plan obligations to Prudential. The employees claimed that Verizon was breaching its fiduciary duty by transferring to a single entity, Prudential. Diversifying the plan would have minimized risk for its beneficiaries. Verizon won the case, however, and the employees had no say.
The power to make changes is typically in the company’s hands, and their main goal is to protect their bottom line. They don’t always have their employees’ best interests at heart.
Consider the Solo 401 k solution. With the plan, you are empowered to direct, invest, and structure your retirement, with your best interests at heart.
Delayed or unpaid retirement payments
Many companies once considered indestructible are now facing closing, downsizing, and even bankruptcy.
Recently, American icon Hostess brand closed after declaring bankruptcy. The liquidation plan included a request to cut $1.1 million per month in retirement benefits, leaving its employees without the benefits that they were promised.
Even city and state governments are not immune. Public service jobs, once considered to have generous benefit packages, are being asked to wait or go without retirement payments. These retirement payments fall to last priority when the government is facing their own issues.
Consider the case of the San Bernardino government. The city of San Bernardino stopped making payments to CALPERS after filing for bankruptcy in August 2012. The city now owes its employees $6.9 million in retirement funds.
Leaving the growth of your retirement fund to another who may, or may not, live up to their promise is a risk. The Solo 401 k solution gives the control back to you- and you can invest, diversify and maximize your funds as you see fit.
Hidden retirement fees
Retirement management fees seem almost purposely obscured in account disclosures. Most people are unaware of what these fees are for, when they’re taken, and how much is being charged. The employers are often not even aware of these fees, and they’re the ones required by law to ensure that their plan’s fees are reasonable.
Custodians take fees “off the top,” from investment returns or added to the fund’s losses. Fees are taken for management, administration, sales commissions, advertising, trading, and insurance, just to name a few. The Government Accountability Office found that these investment management fees make up the bulk of total 401k expenses in a recent study.
The bottom line is simple: as fees increase, your retirement fund decreases.
The Solo 401 k eliminates custodial fees because the plan is structured so that no custodian is needed. You choose where the accounts are established, and the account fees can and should be part of your decision process.
Growing personal debt
A growing issue for many is personal debt. Personal debt can be in the form of credit card debt, loans, or mortgages. Many retirees enter into retirement with debt.
The Solo 401 k solution can help. The plan has a participant loan feature. The participant can borrow from his/her 401k funds, and the loan amount can be used to pay down debt. The participant pays the loan back to the Solo 401 k with interest, growing the plan funds.