The Washington Post

Excerpts from a recent Washington Post online reader chat with columnist Martha M. Hamilton and J. Mark Iwry, principal of the Retirement Security Project and a nonresident senior fellow at the Brookings Institution focused on retirement questions.

Q: I'd like to ask two statistical questions: One: how many Americans hit ages 65-67 with adequate retirement savings? Two: my greatest fear is not the market, the funds, or the fees, but longevity. Do we have any statistical information on what happens to people's nest eggs if they spend 30-plus years in retirement?

A (Iwry): One: Too few. Remember, most financial planners would say that if you want your assets to last your whole life, it's prudent to limit annual withdrawals to about 31/2 percent or 4 percent of the assets. Do the math — those with adequate retirement savings are mostly the quite affluent.

Two: Unfortunately, we need to take all the risks seriously, including the market tanking, your being unable to continue working as long as you expected to be able to, your or a spouse's illness or disability imposing huge health care or long-term care costs, inflation, and outliving your assets. Modeling shows the nest eggs are shockingly vulnerable to a few bad years in the market when you in withdrawal mode — hence the 31/2 or 4 percent advice. An alternative: Buy a life annuity with part of your savings but beware high expenses. Get a fee-only financial adviser to help with that.

A (Hamilton): One of the scariest threats in retirement is inflation. Even when it's mild it can carve a deep hole in your savings. Assuming just 3 percent a year inflation, $40,000 today would be worth $14,200 in today's dollars in 35 years.

Q: From what I hear, the tax benefits of Roth are not legally extended indefinitely. True? Is it possible the government may decide to tax that which they said they would not? Here is what I fear: I put lots of money into a Roth, and when I retire the government says, "Well, we've decided to tax it because we need the money. Sorry!"

A (Iwry): Good question. It is highly unlikely that Congress would dare to cut the tax benefits of the Roth with respect to contributions already in the Roths (as opposed to future contributions made after the change). But you're not being paranoid here: It's not impossible, especially as it could be done in subtle, indirect ways to raise revenue. Some people therefore hedge their bets and divide their savings between Roth and traditional.

A (Hamilton): I think any changes that would be made would be likely to be prospective, but it never hurts to think about what could change.

Q: My company seems to only offer expensive investments in our 401(k) plan. I don't want to park my money in a money market, but I also don't think the return on some of these funds are worth it with the high fees. My wife has a few index funds in her plan that seem to have fairly good returns with much lower fees. Shouldn't companies that offer 401(k)s give us at least one good option for a lower cost fund? Who's making all this cash on these fees?

A (Iwry): You're so right. You shouldn't need to resort to money markets in order to avoid high fees. Index funds or ETFs usually deliver low fees. Can you bring this concern to the attention of the HR people who run your plan? The providers of the funds are making the profits on the fees — it's generally not your employer. But the plan sponsor, usually a committee of execs, is responsible for monitoring the fees so that they are not unreasonable. That's why a communication from you asking about the comparison, especially in writing to them, is likely to get prompt attention. Congress is all over this now.

Q: What are your thoughts about target mutual funds? I've looked at some annuity products. Are they a better choice than a charitable trust when considering highly appreciated stocks?

A (Iwry): Targets are often reasonable allocations of assets to various classes, but check out the fees carefully. All targets are not good — some may be too expensive and others could have poor funds embedded in them. Targets comprised of diversified index funds are usually much cheaper. Annuities can be good, but cost there is even more of a key issue: Scrutinize carefully and get advice from someone who is not getting a commission from your purchase of the annuity.

A (Hamilton): Remember, target funds have no guarantees that they will provide you with what you need at retirement, although studies have shown they perform better than the allocations chosen by individual investors.

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