Second, mutual fund fees are not performance-based. In other words, if a fund charging a 1.0% expense ratio grows an investor's starting balance of $10,000 by 10% (a gain of $1,000), the fee is not 1% of the year's performance gain, it's 1% of the account's total balance. In other words, even if the account earns nothing for the year, you're still going to pay 1% of your total balance in fees.

Third, all else being equal, a fund charging lower fees will provide an investor with more money than a fund charging higher fees. So, investors choosing between two funds with similar strategies and performance records should choose the fund with the lower expense ratio. This is especially important for investors who hold their investments for a long time.

Some Action Steps

Additional cautions raised by the Frontline program:

Don't dip into your retirement savings. Keep the money there for its intended purpose: retirement. Martin Smith learned this lesson the hard way. While he started saving for his retirement in his 20s, he acknowledged tapping those savings several times over the years. Today, he is nearly 65 and has far too little saved.

Prioritize retirement savings over college savings. Again, this is a lesson Smith learned through trial and error. He said most of his savings went to pay for his kids' education expenses, although he noted that going through a divorce didn't help either.

Save more. This was actually the program's most glaring omission — no mention of how little people are saving in their workplace plans, except to imply that workers are not to blame. "Without knowing exactly how long you're going to live," Smith said, "it's difficult to guess how much you need to put away."

Robert Hiltonsmith begrudgingly acknowledged his own need to do more. "The truth is, I'm just going to have to find a way to save way more than you should have to." He pegged that amount at 10% to 15% of his salary.

Of course, none of us knows how long we will live. However, the Social Security Administration's longevity calculator, along with an honest assessment of your family's health history, should help generate a conservative estimate. That, coupled with an online tool, such as Fidelity’s myPlan Snapshot, can be used to run the numbers on how much you're likely to need in retirement and, by extension, how much you need to save each month.

Conclusion

Is retirement investing a complex process? Absolutely. Are individuals capable of handling this task? Yes, but it doesn't just "happen." The new retirement paradigm does require effort on the part of today's employees. But it's not so difficult as to be beyond the ability of most adults, if they're willing to learn a handful of basics. As you consider this responsibility, keep in mind the founding verse of Sound Mind Investing: "For God has not given us the spirit of fear; but of power, and of love, and of a sound mind" (2 Timothy 1:7).

Matt Bell is Associate Editor at Sound Mind Investing. Since its founding by Austin Pryor over 22 years ago, SMI has been providing clear, trustworthy, effective investment guidance to the Christian community. Some 10,000 subscribers look to its flagship publication, the Sound Mind Investing monthly newsletter, for biblical guidance on a range of financial issues and specific investment advice.

Publication date: July 8, 2013