Your 401k’s Shortcomings – Fees

Americans now have over $3 trillion in their 401k’s.

With that much money involved, you can be sure that’s a rich target for retirement plan providers to charge fees.  And many of these providers are all too happy to do so.  And often they try to hide them, or make them too complicated for investors to truly understand.

Not that they need to go to these great lengths in most cases.  Why?  Because most 401k participants don’t pay attention to their investments.  They just “set it, and forget it.”

Recently, AARP asked 800 workers with 401k plans just what they thought they were being charged in fees.  The answer they got back from this survey was startling.  Fully 70% of the respondents felt they were not being charged anything in fees.

Which is obviously not correct.

Plan providers have all kinds of ways to charge fees, and often do.  For starters, the average investor is charged almost 1% (0.83% to be exact) annually.  That means you are charged $830 every year on a 401k with a balance of $100,000.  Year after year.

Then plans may tack on an additional set of “wrap fees” up to 1%.  Hey, there’s another $1000 you are charged.  And none of that even counts the mutual fund fees they offer in the plans, which can be as high as 1.5%.  So that’s another $1500.  And this is the bread and butter of the plan providers in that about all they offer are bond mutual funds, stock mutual funds and perhaps international mutual funds.  All under the pretext of keeping it easy for the beginning stock (and bond) investor.

So it’s not surprising that the average American household with two working adults will pay almost $155,000 in 401k fees over their lifetime.  That is a staggering amount of money just for fees.

Of course, fees and plans will vary, and some 401k’s will not charge quite as much as some of the numbers above suggest.  Of course, some may charge even more as well.

So fees can be a big drawback to investing in your 401k.  And you should be aware of that.

So you’re not part of the uninformed 70% who think they are fee free.

To your health and prosperity – John Roberts

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