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The promise was clear. Put money away every month. By doing so, you would receive a couple of “bonuses,” a) a small match (sometimes) from your employer, and b) a tax break that will save you tens, and maybe even 100s of thousands of dollars over your lifetime. Grow it at 6 percent to 8 percent per year, and by the time you retire you will have enough to live comfortably with your investments and Social Security. We are putting control of your retirement in your hands.

Really? Control of our retirement in our own hands? To me it looks like it was risk, not control, that was transferred by these defined contribution plans. With a pension, which was the standard before the 401(k), you not only didn’t have to worry about losing money in the market, you didn’t have to worry about life expectancy either. Your payout was a guaranteed amount for the rest of your life, and that of your spouse.

Control implies access. Short of borrowing, you have very limited access to your money while you are with your employer. When you do arrange to borrow your money from your plan you will pay interest. The common belief that this is interest you are paying yourself is only half true. The other half of the interest goes to the plan custodian. You are paying someone else to borrow your money! Should you default on the loan, you will owe taxes to the IRS, plus a 10 percent penalty if you are under 59 1/2. This can be particularly difficult if you change jobs, as loans become due on termination of employment.

There may be, if the plan charter allows them, hardship withdrawals which include medical expenses, repairs to, foreclosure on, eviction from, or purchase of a principal residence, funeral expenses, and tuition. However, plans are not required to offer non-hardship withdrawals.

Control implies choice. Assuming you do not require the limited access afforded to you, money inside the plan must be invested. Most plans offer access to limited numbers of equity and bond funds. These funds are often offered based on “revenue sharing” with the plan administrator and/or the employer. Revenue sharing is essentially a legal kickback given by the mutual fund companies to the plan administrator and employer for choosing the funds. I know of one major company that has set up its own in-house investment shop, so the employer can keep the revenue generated by its employees’ 401(k)s. If this isn’t a conflict of interest, I don’t know what is.

Control implies visibility. Funds all have fees, some larger than others. These fees, known as “expense ratios,” range from .25 percent for indexed funds, to 2 percent or more for managed funds. Plan administration fees can be very high. Most statements show a charge around $30 annually for administrative costs. This is a red herring. Total administrative fees are generally in the .5 percent to 1 percent range or even higher. Typical fees for 401(k)s can run from 1.5 percent to 2.5 percent annually, or even more. Fees can have a devastating effect on the retiree; lifetime fees of just 2 percent can reduce your lifetime gains by as much as 65 percent!

Your loss, however, is great for the companies that collect the fees. It is estimated there is $16 trillion in defined contribution plans. A mere 2 percent in fees generates $320 billion a year for the retirement industry. In other words, you put up 100 percent of the money and take 100 percent of the risk and receive only about 35 percent of the reward. The financial industry, on the other hand, puts up 0 percent of the money and takes 0 percent of the risk, and receives about 65 percent of the rewards. In short, it’s working great for them and there is no incentive to change it — or even try to be competitive — while they can hold your money hostage.

Control implies impact on the outcome. Funds go up and down in value with great frequency and unpredictability. You do not actually own your money; you own shares. Shares are not actually worth anything until you trade or sell them, at which point they are redeemed at whatever price you can get for them. That price has no guarantee, no predictability, and is often disconnected from the actual value of the securities you are holding. Market values can often swing wildly based on conditions completely beyond your control.

A few years ago, the Bank of Cyprus decided to recoup losses by raiding client accounts. World markets tumbled on the news. Or remember the Dot-Com Bubble, or the Great Recession. Imagine having this happen just before or after you retire.

The truth is, there is no way to budget when you don’t know a) how much your retirement plan is worth at any given time, and b) you have no idea how long you will require payouts. Until you remove risk it’s not planning, it’s hoping.

Control implies more security. When you were working, your paycheck was predictable, regular, dependable, and steady. You could count on it and plan on it. As long as you showed up for work, no one could take it away. A successful retirement plan will replace this predictable, regular, dependable, and steady income. To do that, you must remove the unpredictability of market returns and losses and solve the issue of unknown life spans. You need to find a different alternative.

Control implies knowledge. If you are preparing for retirement, educate yourself. There are seminars available that address all these issues and more.

Stephen Kelley is a recognized leader in retirement income planning. Located in Nashua, he services Greater Boston and the New England areas. He is author of five books, including “Tell Me When You’re Going to Die,” which deals with the problem unknown lifespans create for retirement planning. It and his other books are available on He can be heard every weekend on the “Free to Retire” radio show on WCAP and WFEA, and he conducts planning workshops at his New England Adult Learning Center, located in Nashua. Initial consultations are always free. You can reach Steve at 603-881-8811 or at