Determining what the average 55-year-old American approaching retirement has in the way of resources is like trying to place your finger on a blob of mercury. The numbers go spitting out in all directions.

There is no age-related national survey, but we do have a 2012 Fidelity research report on its 12 million plan participants. The survey identified 401(k) participants in their 50s and came up with an average account balance of $143,300. This figure, however, ignores what people may have rolled over into IRAs when they changed jobs as well as a 25 percent gain in stock market values in 2013. Based on my own anecdotal evidence after being in the retirement plan business for 35 years, I would peg the median combined 401(k)/IRA account balance at $400,000 for a couple in their mid- to late 50s.

A last-ditch effort to increase that dollar amount over the final 10 years of a career would include the following ideas.

Investment success over time is measured in fractions of a percent. Yet, people in many situations give up full percentage points of annual earnings through fees and guarantees that offer little or no value. Before identifying examples of financial industry waste products, let's look at the math of what even a annual 1 percent fee would cost on a modest account.


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An investor age 55 with just $200,000 in his/her combination of retirement plans (IRAs, 401(k)s 403(b)s, etc.) should be in a position to contribute $1,000 per month into their current employer's plan over the next 10 years (including whatever match or employer contribution might be offered). Today's $200,000 (in stocks) earning an average of 10 percent per year will almost double twice to $518,000 over the next 10 years. The new, in-bound $1,000 per month also earning an annual 10 percent will compound to $206,000 over the same 10 years. The sum of both sources will be $724,000. This would support an eccentric personal lifestyle considering that a 5 percent income of $35,000 will be over and above Social Security benefits. All of this income is free of Medicare and Social Security taxes.

By comparison, if just 1 percent in investment costs, commissions, guarantees and/or an excessive allocation to bonds reduces the rate of return to 9 percent, then the corresponding numbers are $473,000 and $194,000 for a total of $667,000 -- a $57,000 reduction in asset size in just the next 10 years. That eats up the equivalent of half of the $12,000 per year contributions over 10 years -- the $120,000 of new money.

The "missing 1 percent" illustrated above can often be as much as 3 percent or more. Many so-called "guaranteed" investment products guarantee against nonexistent risks and charge 2 percent per year. Some financial advice services charge 1.5 percent of assets on an ongoing basis. Controlling costs and considering a do-it-yourself approach is certainly worth the effort as these numbers indicate.

Furthermore, all the calculations are linear. Just double all the numbers, including the difference in nest-egg size if today's account is $400,000 and your contribution is $24,000 per year. The missing 1 percent jumps to $112,000.

Anyone concerned about reaching retirement and having money exposed to the stock market should remember that they will need to have at least half of their assets invested in stocks throughout retirement to protect against inflation. Anyone wanting to be somewhat protected while fully committed to the market, however, may find comfort in a few fundamentals: First, there is the stock market "snapback" phenomenon enjoyed after all eight crashes since 1970. Crashes are temporary and short-lived.

Next, investing in large, dividend-producing stocks (or mutual funds concentrated in utilities and large-company dividend payers) creates both income as well as a floor under the stocks. A steady dividend just becomes a greater percentage return as a stock drops in value, which sets the stage for a "reversion to the norm." Finally, equity in homes acts more like a bond than a sock. Too much money in bonds (including the home) prompts many to forego what might have been a greater share of stock market gains.

Armed with these truisms, those approaching retirement can benefit from investing more aggressively than they otherwise might have considered.

Steve Butler can be reached at 925 956 0505, ext. 228 or subtler@pensiondynamics.com.