Ugh, John Hancock 401k - is it worth it?

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ryoung
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Ugh, John Hancock 401k - is it worth it?

Post by ryoung » Tue Aug 13, 2013 3:17 pm

My wife is just becoming eligible for 401k at her new job. It's a John Hancock 401k, and while there are a lot of options, they are all over 1%. I'd say an average of 1.3%, they are supposed to be sending over a list of all the options & ER's -- viewing them on their website is an exercise in futility :(

They match 4% of contributions, on a 5 year vesting schedule (20% yearly). I'd expect that my wife will be there 3-5 years.

Based on the ER's, I don't see the use in contributing more than the match -- but I'm curious about if even the match is worthwhile at that vesting schedule?

Any thoughts?

donall
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Re: Ugh, John Hancock 401k - is it worth it?

Post by donall » Tue Aug 13, 2013 3:35 pm

Yes, I'm in a similar situation, I contribute to the match.
20% of 4% a year contribution is better than 0.
Look into expenses with John Hancock, there will probably be more than you think.

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roymeo
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Re: Ugh, John Hancock 401k - is it worth it?

Post by roymeo » Tue Aug 13, 2013 3:35 pm

1:1 match = 100% return, once vested, or 20%/year
subtract 1.3% fees per year

Please explain how this is a bad return?
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dickenjb
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Re: Ugh, John Hancock 401k - is it worth it?

Post by dickenjb » Tue Aug 13, 2013 3:38 pm

Let's see, the match is giving her a guaranteed 20% annual return, but you are worried about a 1% hit per year to expense ratio?

I'd say it is worth it.

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SpringMan
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Re: Ugh, John Hancock 401k - is it worth it?

Post by SpringMan » Tue Aug 13, 2013 3:43 pm

I would contribute as much as possible, even more than just the match. Your wife plans to be there 3 to 5 years, when she leaves she can roll the John Hancock 401(k) over to a lower cost Vanguard IRA.
Best Wishes, SpringMan

ryoung
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Re: Ugh, John Hancock 401k - is it worth it?

Post by ryoung » Tue Aug 13, 2013 3:51 pm

Thanks, of course you just have to look at it in the right light I suppose. The expenses can't catch up to the match over that time frame at that contribution level.

@spring, we max my 401k and our IRAs, I'm not quite sure we can max hers as well at this point. But it doesn't bear examining, thanks.

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xyz12
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Re: Ugh, John Hancock 401k - is it worth it?

Post by xyz12 » Tue Aug 13, 2013 4:10 pm

She should definitely contribute up to her employers match -- it's free money.

Without more information it's tough to advise on whether she should contribute more. How valuable is the tax-deferred space in the context of your overall portfolio? Incomes? The fees and high expense ratios may not matter much if she changes jobs in 3 - 5 years. How long does she plan to stay at this employer?

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Tim_in_GA
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Re: Ugh, John Hancock 401k - is it worth it?

Post by Tim_in_GA » Tue Aug 13, 2013 4:32 pm

dickenjb wrote:Let's see, the match is giving her a guaranteed 20% annual return, but you are worried about a 1% hit per year to expense ratio?

I'd say it is worth it.
No, I don't see a 20% annual return.

But I agree it's worth it to invest up to the match (at least). I have a JH 401k at work and get a 4.25% match. I contribute much more than that though but only in a couple of index funds at 0.6 to 0.7% ER.

epictetus
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Re: Ugh, John Hancock 401k - is it worth it?

Post by epictetus » Tue Aug 13, 2013 6:32 pm

my wife also has a relatively new john hancock 401k. there were lots of not good choices but there was an S&P 500 index fund in there for about a .50-.60 expense ratio. so we directed it all there and will balance out the rest in other accounts.

i had to look around carefully in all the materials to find it.

i'm sure you have double-checked but just mentioning that the one decent fund can be hard to find buried in all the other funds.
Focus on what you can control

downshiftme
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Re: Ugh, John Hancock 401k - is it worth it?

Post by downshiftme » Tue Aug 13, 2013 7:21 pm

If your wife will only be there for 3-5 year, the corrosive effects of the high ER funds will not overwhelm the tax advantages and match from the employer. You will still be better off contributing. In similar situation, I contributed as much as I could, then rolled it into a Vanguard IRA when I left for new employment. For employees over 5 years of service, the high fees start to become an anti-retention policy, but for short employments, the advantages of the 401k still overcome the high ERs.

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wintermute
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Re: Ugh, John Hancock 401k - is it worth it?

Post by wintermute » Tue Aug 13, 2013 8:02 pm

Be sure to save documentation of the vestment policy and her vestment %, before she leaves. I just had a former employer who told JH I was only partially vested. Once you initiate a roll-over, they disable your login.

It's also best if you shift your 401k alloc to as close to cash (eg, MM, stable value) just before rolling-over, to simplify the catching of any errors. JH will cash you out and mail a check anyway, since you don't own tradable shares that can be ACAT'ed.

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grabiner
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Re: Ugh, John Hancock 401k - is it worth it?

Post by grabiner » Tue Aug 13, 2013 8:11 pm

ryoung wrote:My wife is just becoming eligible for 401k at her new job. It's a John Hancock 401k, and while there are a lot of options, they are all over 1%. I'd say an average of 1.3%, they are supposed to be sending over a list of all the options & ER's -- viewing them on their website is an exercise in futility :(

They match 4% of contributions, on a 5 year vesting schedule (20% yearly). I'd expect that my wife will be there 3-5 years.

Based on the ER's, I don't see the use in contributing more than the match -- but I'm curious about if even the match is worthwhile at that vesting schedule?
If she stays for five years, she gets a 100% match, and loses 6% to five years of higher expenses;' she can then roll it over into an IRA and get rid of the expenses. That's much better than investing in your IRA, or unmatched investing in your 401(k).

And if she only expects to keep the job for five years, even unmatched contributions are better than a taxable investment; she will lose 6% to higher expenses, and a taxable investment will lose more than that 6%.
Wiki David Grabiner

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