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The mutual fund industry has taken aim at the U.S. Securities and Exchange Commission over new proposed rules that could harm millions of Americans saving for retirement.
The SEC wants to change how mutual funds are run in order to better prepare them for stressed market conditions and to protect investors’ interests.
However, critics believe the SEC’s proposals are “unworkable and costly” — and they could make it “harder for families to achieve their financial goals,” according to Eric Pan, president and CEO of the Investment Company Institute (ICI).
Americans often turn to mutual funds to save for retirement, but with this path potentially at risk, there are other ways to keep your retirement plans on track.
What does the SEC want to change?
The SEC wants mutual funds and some exchange-traded funds (ETFs) to hold at least 10% of highly liquid assets — meaning cash or an asset that can be readily converted to cash — to help manage heightened redemptions during times of economic stress.
It also wants to enforce swing pricing and a hard daily close of 4 p.m. Eastern Time for traders — two amendments that have boiled the blood of fund managers.
Swing pricing tweaks the net asset value (NAV) of a fund in line with trading activity so that sellers bear the costs of exiting the fund without diluting the shares of remaining investors.
The proposed hard daily close is “a dramatic change,” according to Pan, who says that cut-off times — potentially as early as 7 a.m. on the west coast — will mean that “mutual fund investors will lose full access to trading at today’s price during normal market hours.”
The question that fund managers are asking is: Why fix what ain’t broken?
“Mutual funds have existed for almost a century,” argued Pan. “Over the years, they have withstood shocks ranging from depressions to global wars. Mutual funds work. They help people build financial security.”
Fidelity’s independent trustees are “deeply concerned” about the SEC’s proposals that “came without first collecting and analyzing the necessary data that demonstrates that a problem exists.”
You don’t have to sit back while policymakers spar over mutual fund management. Here’s how you can take control of your long-term financial planning.
Read more: Here’s the average salary each generation says they need to feel ‘financially healthy.’ Gen Z requires a whopping $171K/year — but how do your own expectations compare?
How to keep your retirement plans on track
To plan for the future, you should take a long hard look at your current finances and ask yourself:
- Are you saddled with debt?
Settling your debts is important because things like credit card debt, your car loan, the mortgage on your house, and the remaining balance on your student loan all accrue interest over time.
If you’re not in a position to pay and you’re tied down by multiple lines of credit, you can try negotiating with your lender or consider a debt consolidation plan, which pools your various debts into one simplified loan, often with a lower interest rate.
- Are you saving enough?
A shocking 60% of non-retirees are concerned about their retirement savings, according to data by the Federal Reserve Board. These concerns have become more acute as Americans battle record-high inflation.
There are real benefits to saving for retirement as early as possible. For starters, your nest egg can benefit from compound interest — when you earn interest on your interest over time.
To help with this, you may want to consider taking advantage of online banks, where savings accounts are now returning 2.5% or more, which is a big advantage over brick-and-mortar banks.
While you may have to prioritize immediate financial milestones like buying a house or paying for your kids’ schooling, making a habit of saving — even if it is just a small amount every month — can be a huge benefit when you’re ready to retire.
- Are you making the most of tax-friendly investment vehicles?
When planning for your financial future, you should consider using tax-friendly investment vehicles like a 401(k) account if your employer offers one.
A 401(k) retirement savings plan will allow you to steer a portion of your pay into an account where you can invest and grow your money — and get a tax break.
If you don’t have access to a 401(k), you might consider opening a traditional IRA, where you can contribute pretax income and grow it tax-free until you make withdrawals in retirement.
You’re allowed to contribute up to $7,500 in a 401(k) and up to $1,000 in an IRA in 2023.
Another option is a Roth IRA, where your contributions are taxed upfront so that your withdrawals are tax-free in retirement. Roth IRAs are popular for their advantages and flexibility, but they do have certain rules and limitations and you can face penalties if you withdraw your earnings too soon.
The good thing about all of these accounts is they allow you to grow your wealth and put your money to work, giving you needed cash flow in retirement.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.