In fact, the company even sends you a memo saying that they cut the fees on your plan to 0.10%.
Fantastic! You're socking away the savings. Fees aren't eating up your returns. You'll be able to retire in no time!
BUT (you saw that one coming) . . . that's not the whole story. In fact, it's not even close to reality.
A little digging around finds out that 0.10% doesn't account for all the fees you're really paying. You discover undisclosed expenses for management fees, commissions for buying and selling securities in the plan's mutual funds, revenue sharing, advisory services and more.
All of a sudden that 0.10% turns into 3.5%!
Seem farfetched? Well, that's exactly the situation an employee at one engineering company described in a recent Bloomberg article.
The sad fact is that most employees don't know they're paying any fees in their company's 401k. And only a tiny fraction go to the trouble of finding out what they are paying in fees like the employee featured in the article.
We constantly harp on investment fees because we believe there is no reason you should be paying as much as you are probably paying right now. Not only do fees eat up your returns, but there's no evidence the advice you are getting from your money manager(s) justify those fees by helping you beat the market.
The other important issue to note is that the employee in the article has plans to retire this fall but now, in part to the high fees he's been paying all these years, he's not sure he'll be able to. It's easy to get caught up in all the numbers and statistics in investing (in fact, Wall Street's counting on you doing that) but there are serious, real life consequences at stake.
The article reports that an extra 1% in fees can decrease your returns by 15% over 30 years. So say instead of $1 million at retirement, you only have $850,000. What does that lost $150,000 mean to you in real terms?
Having to work longer than you want to/plan to?
Not leaving as much behind to your children/grandchildren as you planned?
Not having enough to leave a bequest to your favorite charities?
Cancelling your plans for that dream vacation you want to take when you retire?
Maybe you feel it's not worth fighting for an extra percentage point here or there - but how about fighting for an earlier retirement, dream house, or dream vacation?
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