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Making It in San Diego: Not all 401Ks are equal

Posted: 3:52 PM, Feb 15, 2019
Updated: 2019-02-16 03:13:30Z
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SAN DIEGO (KGTV) - There are 11 million millionaires in the United States. 93 percent of them live on a budget and drive cars at least four years old with 40,000 miles.

As 10News continues our series Making it in San Diego, we’re talking to financial experts to find out the critical must-do's to building financial freedom. We found it's not all about the amount of money you make, it's about what you do with the money you earn.

Josh Robbins is the Chief Strategy Officer for America's Best 401K and has been in the financial services industry for nearly 20 years.

His first question: What's your outcome? If it's financial security, he says you have to start early. He says people become financially secure by understanding the power of time and compounding.

“It doesn't require hitting some great home run. It requires having the discipline, to automate it, and put it aside every month,” says Robbins.

Robbins says it’s crucial for the 80 million Americans using a company-sponsored 401K retirement plan to understand the fees they're paying.

“If you have two people and one is paying 1 percent and the other is paying 2 percent, over their lifetime the 1 percent will have twice the amount of money.”

Robbins says although 401Ks have been around since the 80s, for the first 30 years they didn't have to tell you how much they were charging.

“In any other industry would this be acceptable? Would you go shopping in a clothing store and take your clothes up front and they would say, don't worry about it, we'll take it out of your account?”

Laws changed in 2012, but Robbins says the disclosure documents still don't make it easy. As a result, people leave money behind.

“What they're doing is leaving half their nest egg on the table. So you have to be empowered as an individual to say ‘I have to uncover what my fees are.’ Big providers with their names on blimps and stadiums are counting on us not knowing.”

Robbins says fees should be .7 percent or less, and that's the total amount taken out of your account.

“If you shave your fee from 1.5% to .5%, your money will last ten years longer,” says Robbins. “That shortfall leaves massive implications through their family, and on to social programs”

Financial planner Marc Gallo agrees, employees shouldn't leave money on the table to fees, and employers need to bench mark their plans to get the best deal.

“A lot of times they [401 K Plans] haven’t been reviewed in years; there’s been a lot of fee compression. If no one has gone in and looked at it, we should open our eyes to that again,” says Gallo.

Gallo advises his clients to plan with the end in mind, and to that end he says the first thing he tries to teach is discipline.

He says people collect money in their 20s, 30s, and 40s and sit down when they’re 65 and want it all to work together.

Gallo says everyone needs to spend time on it along the way.

“They [people] spend time planning a getaway with their significant other and they spend no time working on their retirement plans. Just spending a couple of hours a year is significantly beneficial for them, versus set and forget it.”

Taking ownership over your accounts, the fees you’re paying, and ultimately your future, is also Robbins’ primary message. He directs people to showmethefees.com where they can find out for free what fees come with their current 401K plans.

Robbins encourages employees to talk to their employers if their plans carry high fees. He says it’s the company’s responsibility to benchmark the plans and offer the best plans.

“Over time, millions of dollars would go back into the hands of employees, instead lining someone else’s pocket.”