Avoid These Retirement Nest Egg 'Bandits'

After you have spent your whole life to date skimping and saving to accumulate enough funds with which to retire on, the last thing you want is to have them 'taken' from you, right? Unfortunately, there are many subtle and legal 'Bandits' that can rob you of your comfortable retirement.

All of these are perfect legal and most people give in to them willingly without thinking of the negative effect that they have on their nest egg. They have become routine expenses and are thought of as being minimal, but when you add them all together, their aggregate cost can be incredible!

Here are a few of the most obvious nest Egg 'Bandits'

Credit Card Interest

When you are on fixed income, you obviously need to also 'fix' your expenses so that you don't get into a negative situation. Whenever you use a credit card to purchase something that you don't have the cash for, you unconsciously agree to pay interest on that item in order to have it now. Debit cards, on the other hand, can be used at the same merchants to purchase products and services with the funds immediately withdrawn for your account. With a debit card, you never have to pay interest charges. For retirees on fixed income, credit card interest is perhaps the most violent of 'bandits'!

Brokerage Charges and Fees

When you invest your nest egg in stocks, bonds, index funds and mutual funds, there is usually a 'load' or brokerage fee or other thinly masked cost associated with the investments. You can research any mutual fund, stock fund, or index fund and look for their 'Expense Ratio". This is a number, expressed as a percentage that will be collected each year, out of you invested funds, for the honor and privilege of owning that particular account.

For mutual funds, this fee is somewhat higher since you have to pay for the team of people who routinely manage the fund on a daily basis. Since index funds are invested in a whole market segment, there is no management or research team and there is little buying and selling going on. Therefore, Index funds normally have Expense Ratios (.02% - .80%) considerably less than managed Mutual funds (1.2% - 3.4%). These fees can be 2% to 3% or more of your money and that's a pretty heavy load for you to carry when you are trying to live off of your investments.

After deducting fund's expenses from your profits, very few stock mutual funds have outperformed the index or the markets over the years. The broker's argument is that, through their careful management of your money, you earn considerably more in their fund than can be had elsewhere. That, in itself, may be true, but you must deduct the funds expenses before comparing. The only thing that is very certain is that they will deduct their fee from your funds!

Index funds are perhaps the best way of minimizing the expenses related to your nest egg investment. There are all sorts of index funds, Large Cap, Small Cap, Real Estate Investment Trusts (REIT's), Bonds, Emerging Markets, International, etc are just a few of the index fund types that are available with a very small expense ratio.

Service Contracts

Whenever you purchase an appliance or a car or some other 'big ticket' item, it is increasingly popular for the dealer or vendor to offer you an extended warranty on the product -for a fee. These typically extend the manufacturer's warranty for an additional period and can cost from 2% to 8% of cost of the product. More than 90% of extended warranties are never utilized and this is a very high profit item for the vendor. They routinely pay their salespeople very high commissions for selling these 'add-on' contracts.

Extended Warranties and Service Contracts are normally insurance products and the insurance company will pay the repair or replacement cost of the product should there be a problem after warranty expiration. By refusing all such extended warranty offers, you will likely save considerably more money than you will ever have to pay for out of warranty repairs. Avoid this Nest Egg 'Bandit'!

If you think about it, there are several of these bandits to avoid. If you do so, you can enhance your Nest Egg considerably! It is not difficult to do.