How Saving with CalSavers Could Cost Over $15000 of Your Hard-Earned Money

Joshua Steig
6 min readMay 23, 2021

The State of California is enforcing all business that do not have a qualified retirement plan to enroll their employees in the CalSavers Retirement Savings Program. When I first was notified of this, I immediately investigated this new program.

What is CalSavers? CalSavers is a retirement savings program set up by California to establish a Roth IRA for California workers without an existing retirement savings plan with their current employer.

What is a Roth IRA? A Roth IRA is a retirement savings account that is funded by the account holder with after tax dollars. If you are an individual and make less than $140000 per year ($208000 for couples), you can contribute up to $6000 per year to a Roth IRA in 2021 ($7000 if you are over the age of 50). Qualified withdrawals from the Roth IRA are then tax free.

CalSavers is being sold to businesses as a way to set up a retirement account for each of their employees. The employers do not and can not contribute to this program as it is an individual IRA. It is only the contributions from the employee into their account that CalSavers will set up for them once their employer hands over their employees’ SSN or TIN, address, date of birth and email address.

Do not get me wrong, I think it is critical for everyone to establish an investment account as soon as they start earning income. An IRA is a great way to establish retirement savings. However, CalSavers is going to steal from savers in the long run.

When I am opening an account with any investment service, my main concern is the fees that I am going to be charged. Here is the listing of the fees that CalSavers noted in their Program Disclosure Booklet dated April 2021:

CalSavers total annualized fees average approximately .9% of the saver’s account balance. This is $9 for every $1000 in the saver’s account. Now you are probably thinking the same thing I am thinking. This is another way for California to take hard earned income from its residents.

After reading this, I started looking at some of the popular robo advisors that offer similar investment opportunities. Robo advisors use low-cost ETF funds to help you achieve your investment goals. They offer IRAs, as well as individual investment accounts. For example, my existing account with Betterment is currently invested in the following ETFs. I also including each fund’s annual fees:

Betterment 100% Stocks Portfolio

The accumulative average fee of .05% is almost half of the fees being charged by the funds that the saver is offered in the CalSavers program (.09%).

I did a quick search to find some of the popular robo advisors and the administrative fees for their services to see how it compares to the administrative fees being charged by CalSavers.

To calculate the total fees of the robo advisors, we will add the average fee from the chart above (.25%) to the average ETF fund fee (.05%). This is a total administrative fee of .30%. The average savings over the administrative fees charged by CalSavers is .6% or $6 per $1000 in the saver’s account (.9%-.3%). This may not sound like much, but over time this really does add up.

To get an idea of the total additional cost associated with holding your funds in a CalSavers account, I took the $6 in additional fees charged the first year and added an additional $6 per year for 20 years. I then took the S&P average return of 8% over a long period of time to calculate the total additional cost per $1000 the CalSavers program is going to cost its savers.

Compound Interest Calculator via Investor.gov

The total additional cost of the CalSavers program per $1000 the first year alone is $324 figuring a 20-year investment period at an 8% return ($6 initial fee difference in year 1 with an additional $6 per year for another 20 years). If the saver were to contribute the maximum allowable amount of $6000 to the Roth IRA established by CalSavers, the cost of the first years’ $6000 investment in additional fees after 20 years would be approximately $1944 versus the cost of using a robo advisor. If the saver continues to contribute the additional $6000 maximum every year thereafter to their CalSavers account, this adds up to a total loss in potential earnings of over $15900.

Total Additional Fees Paid Over a 20 Year Period

It is my opinion that instead of forcing contributions to a State program, we should educate savers on lower cost ways to save money for retirement. The last thing we should want the government doing for us is handling our finances. They have enough trouble handling their own. In a recent article I wrote, How to Become a Millionaire Making $19 Per Hour, I showed how budgeting and setting aside as much money possible twice a month can make you a millionaire in 28 years or less making only $19 per hour.

CalSavers is giving savers the option to opt-out of their program. This would be my suggestion. The saver would be better served signing up with a robo advisor and setting up an automatic deposit every pay period to be deducting from their bank account and sent to their investment account. If this investment account is not an IRA, these funds are available to be withdrawn at any time with no penalties (except the taxes due on any investment gains). This is beneficial as it should encourage the saver to try to max out the dollar amount they send to their investment account, knowing it is available for them to use when needed.

If I were running one of these robo advisor companies, I would be filling up the mailboxes of hard-working Californians with this information. For me, this is more important than any election. This is my hard-earned money at stake. My future, and my family’s future. It belongs to us and I will not be contributing more of my money to State sponsored programs designed to put money in other people’s pockets.

Joshua Steig is not a licensed financial advisor. The statements in this article are his opinion based on 26 years of investment experience and education. He uses his experiences in investing to derive simple ways for the novice investor to make smarter investment decisions. Please consult your financial advisor to assist you in your financial planning.

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Joshua Steig

Small business GM. Love to workout. Finding healthy ways to feed my food cravings. Long term investor for a long healthy life with my wife. I love coaching.