1. Managed Mutual Funds and Retirement Income
How Economic Literacy Pays Big Dividends

2. Our focus is consumer education, primarily in the financial arena
Our goal is to provide information so that consumers can make educated decisions
We want consumers to take responsibility for their financial well-being
We provide motivation and education through the Big Bend Saves program

3. Big Bend Saves Free online program to encourage individuals to
Save money
Reduce debt
Build wealth
Based on the theories of behavioral economics
Make a pledge to save
Set financial goals, track spending and take control of your financial future

4. David W. Rasmussen James H. Gapinski Professor of Economics
Florida State University
Dean Emeritus, College of Social Sciences and Public Policy
Affiliate: Pepper Center on Aging and Public Policy
Affiliate: L. Charles Hilton Center for the Study of Economic Prosperity and Individual Opportunity

5. The Main Story
How to achieve a solid investment strategy for retirement assets
Preview: about 70 percent of all financial retirement assets are getting a lower rate of return than they should
This amounts to tens of thousands of dollars for even modest savers

6. Is There a Natural Tendency to be Financially Illiterate?
People are generally:
Myopic
Ignore the power of compound interest
Do not understand risk
Psychologically we may be wired to be economically illiterate

7. Where Retirees Get Their Income
Earnings Based Wealth*
Housing**
Other Wealth***
Work
< $5,000
$1,902
$8,004
$156
$259
$10,321
$5,000-9,999
6,757
7,572
139
448
$14,916
$10,000-14,999
11,337
7,548
101
535
$19,521
$15,000-19,999
15,948
9,408
191
830
$26,377
$20,000-29,999
21,247
11,304
686
2,475
$35,712
$30,000-39,999
27,064
12,768
1,236
5,597
$46,665
$40,000-49,999
28,936
13,848
2,220
12,503
$57,507
$50,000-69,000
32,998
15,300
3,904
20,870
$73,072
$70,000 +
38,737
21,684
12,584
73,309
$146,314
*Social Security, private and government retirement
**monthly rental value of owned *12
*** interest, dividends, rental income, and other property income
Source: Consumer Expenditure Survey, U.S. Department of Labor Statistics, August 2016

8. Fundamental Insights for Future Retirees
Social security and defined benefit pensions will provide less income in the future
Continuing to work will be critical for more households
Some households can tap housing equity for emergency situations
Saving by individuals will be more important as will continuing to work
Economic literacy is required for household decisions

9. Pitfalls in Saving
70% of the $13.7 trillion in 401K Retirement Funds are in high cost managed funds that the Economist calls a “rotten deal”
Consumer Reports headlines “Mutual Fund fees skim big bucks from 401(K)s: A household of two median –income earners will pay about $155,000 over 40 years”
The Consumer Federation of America reports that a “Review of 25 major brokerage firms and insurance companies find all posing as fiduciaries, misleading consumers

10. A Comparison of Investments in Managed Funds vs an Indexed Mutual Fund
Fee Level
High*
Medium**
Low***
Investment Amount
$20,000
Estimated Return
7.00%
Holding Period (years) 15
Fund Value After 15 years
$39,910
$48,068
$53,872
Profit/Loss
$19,910
$28,068
$33,872
Total Fees and Expenses
$9,337
$4,417
$820
*Virtus Enhanced Core Equity Fund Class
**Dreyfus Appreciation Fund, Inc. Class Investor
***Vanguard 500 Index Fund Investor Class
Source: Financial Industry Regulatory Authority, Fund Analyzer, apps.finra.org/fundanalyzer/1/fa.aspx

11. Why are Returns to Managed Funds Lower than Index Funds?
Distribution fees
Sales commissions
Bid/ask spreads
Cash drag

12. Lower Fees Make a Big Difference
Lower Fees Make a Big Difference Comparing Returns: Index vs Managed Funds
Age
Annual Savings 7%
Return
4.8% 30
$600.00
$642.00
$628.80 40
$9,470.16
$10,133.07
$8,435.54
$8,840.44 50
$26,919.11
$28,803.44
$20,957.77
$21,963.74 60
$61,243.82
$65,530.89
$40,969.95
$42,936.51 70
$124,473.77
$133,186.93
$68,891.41
$72,198.20

13. Why do Smart People Make Dumb Financial Decisions?
Brokers benefit from selling high fee managed funds while “serving” us
We want to believe self-interested brokers that we can beat the market
The Illusion of control

14. The Challenging Task of Increasing Financial Literacy
An easy message of financial literacy: low fee index funds pay better
In principle, a nudge towards a responsible broker
How to combat myopia in decisions regarding work, home equity, and saving

15. Questions?