The Street asks if your 401k plan is ripping you off. They note that depending on how your 401k is set up, you could be paying as much as 4% in various fees and other costs. As you might imagine, this can have a very negative impact on the performance of your investments. How much? Here's an example they use:
A 25-year-old employee who currently has around $25,000 in his or her retirement account, and whose annual contributions (and employer matches) total only $2,500, in a plan that is allocated 80% to stocks and 20% to bonds, could forfeit more than $660,000 by age 65 -- if the plan charges excess fees totaling just 1% a year.
$660k? Yikes!
A few thoughts from me on this:
1. If you don't know what fees your 401k charges, find out.
2. If fees/costs are high, take the steps the article suggests to lower them.
3. My company is very generous and actually pays all the administrative fees associated with our 401k. I still have fees from the underlying funds I invest in, but since my investments are in low-cost index funds, these expenses are minimal.
For related thoughts on this issue, see these posts:
This is a company worth looking at if you have any control over the administration of your company's 401k. Employee Fiduciary... www.employeefiduciary.com They have a full cost disclosure policy and return any sales commissions offered by funds back to the plan participants.
Posted by: JK | February 27, 2008 at 08:18 AM
The whole 401k system is total BS. Why should I be required to invest ONLY in the funds my employer chooses to allow me to invest in and ONLY through a company my employer chooses for me? That isn't capitalism, it's captivity. Ideally, I would be able to open a 401k account with anybody I chose and have it follow me around. I would just give my account number to HR whenever I start a new job and they would handle contributions the same way they handle direct deposit. I'd be willing to bet most of these outrageous fees would disappear overnight if companies were forced to actually compete for our retirement dollars.
Posted by: Kyle | February 27, 2008 at 08:59 AM
Of course by the time it adds up to $660K then that will be going price of a mid level car! Still small percentages add up over time.
-BC
Posted by: Big Cheese | February 27, 2008 at 01:30 PM
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Posted by: Bibokz | February 28, 2008 at 04:35 AM