These 5 misconceptions can make the difference between hitting your financial goals and easily exceeding them. Be sure to stay until the end to learn about how much your 401(k) really costs you …
Costly 401k Myths We All Thought Were True
401(k) Fees. Department of Labor (DOL) Report:
– Google: average 401k fees DOL
or
– Click here. (Caution: Automatically downloads a PDF from the DOL’s website)
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67% Do NOT Know This About Their 401K … And It Cost Them Dearly
Retirement planning is an essential aspect of financial security, and for most Americans, their 401K plays a crucial role in this process. A 401K is an employer-sponsored retirement savings account that allows individuals to contribute a portion of their pre-tax income towards their retirement. While many people are aware of the existence of their 401K, a startling 67% of individuals are unaware of a critical fact about these accounts that can potentially cost them dearly.
The alarming reality is that the majority of Americans do not know how much they are paying in fees associated with their 401K. These fees can significantly impact the overall growth of their retirement fund. According to a survey conducted by TD Ameritrade, only 33% of participants had any knowledge of the specific fees they were being charged.
One might wonder how such a significant number of individuals are unaware of something as crucial as the fees attached to their retirement savings. One reason for this lack of awareness is the complex nature of the fee structure. Many fees are hidden or are buried deep within the paperwork provided by financial institutions. The lack of transparency surrounding these fees often leaves individuals in the dark, unaware of what they are actually paying.
One of the most common fees associated with 401Ks is the administrative fee. This fee covers the cost of managing and maintaining the retirement plan and is usually a percentage of the total assets invested. Although seemingly small, these fees can stack up over time, hindering the overall growth of the retirement fund.
Another fee that often goes unnoticed is the investment fee. This fee is charged by mutual funds or other investment vehicles offered within the 401K plan. It covers the cost associated with managing the investments within the fund. Again, this fee may appear insignificant at first glance, but over the long term, it can have a substantial impact on the final nest egg.
The consequences of being unaware of these fees are immense. Over a 30-year period, a single percentage point increase in fees can potentially reduce an individual’s retirement savings by almost 20%. This means that a significant portion of their hard-earned money is being eaten away without their knowledge.
So, how can individuals protect themselves from these hidden fees? The first step is to educate oneself about the fee structure associated with their 401K. By thoroughly reading the provided disclosures and statements, individuals can identify and understand the various fees they are being charged.
Additionally, it is essential to compare the fees charged by different financial institutions. Not all 401K plans are created equal, and while it may seem like a daunting task, researching and switching to a plan with lower fees can significantly impact the growth of retirement savings.
Furthermore, individuals should take advantage of online resources and calculators that can help them estimate the impact of fees on their 401K. By entering specific data, such as their current retirement savings, anticipated contributions, and estimated fees, individuals can have a clearer picture of how fees can impact their future financial stability.
In conclusion, the lack of awareness about fees associated with 401Ks is costing Americans dearly. With the majority of individuals in the dark about the specific fees being charged, their retirement savings are taking a significant hit. Education and due diligence are crucial in safeguarding one’s financial future. By becoming knowledgeable about the fee structure and actively seeking lower-cost options, individuals can maximize their retirement savings and ensure a more financially secure retirement.
My 401(k) has a asset based fee. I call that a rip-off fee.
The thought of retirement makes me cry. My apologies to everyone who have retired and filing social security during this time after putting in all those years of work just to lose everything to a problem you weren't to blame for.it's especially difficult for people who are retired.
Sorry don't live in the States: whais is 401k?
Best thing I did was subscribe to an investment newsletter that has been around for 30 years and followed their recommended portfolios based on the risk I wanted to take.
I was an unexperienced investor who retired early and i lost over $30K when everything started to tank. Not because I was in an exchange that went belly up. I was just stupid to hold and because that's what everyone said. I'm still responsible. It just taught me to be a better investor now that I understand more of what could go wrong. It took me over two years of being in the market, I'm really grateful I find one source to recover my money, at least $5k profits weekly. Thanks so much Mrs Pam Joan Birnie
I rollover over 1 of my 401k into an IRA with Vanguard, very low fees.
These are fantastic takes, I was really hopeful of my investments this year, but all my plans have been disoriented. I've been studying the market crashes and I realized some investors made a fortune from the recent 2008 recession and I was wondering if such success rate could be achieved in this present market. I'm open to ideas about investing for retirement.
We experienced the peak of our era, and now it is gone. Recession is tanking everything including 401K. My retirement equities portfolio of $750K is in the reds. I keep losing because of inflation. This world will fall to the corrupt rulers in the same way that Rome did. I'm sorry if you're thinking about retiring and you're worried that your pension won't be enough to meet the rising cost of living. Horrible foreign policies everywhere, bad regulatory policy, bad fiscal policy, and bad energy policy.
The Department of Labor just requires fees to be "reasonable" and doesn’t specify a certain percentage or total amount that 401(k)s can charge.
Empower takes there share of fees of my 401k. Very expensive compared to my last 401k provider, our business sold and we only have on 401k provider.
What about the new rules for catch up contributions from the Secure Act 2.0? If a high earner has to invest into a Roth account, how does the IRS income limit on being able to have a Roth account come into play? If you make too much and use a Roth, you’re subject to an excise tax right? Are these new Roth catch up payments not limited to the Roth income limits?
Fees are low if you participate in TSP.
Somehow, I have killed it. Started my current 401k six years ago. Opted for self directed brokerage account and went all in on one superstar stock. Balance is over $400k, glad I don't list to standard advice. Retirement age, so may shift gears at some point after conversion to IRA.
Rolled 5 401Ks into an IRA with flat fee 75.00 yr. First half pension saved in Roth IRA for last 3 yrs. Still working. No biggie, we will pay taxes thru retirement.
Everyone needs to have physical Gold 10-20% of net worth
401k to IRA for sure, fees are a silent mouth to feed.
401k money coming out fixed withholding taxes, IRA you set the rate withheld.
Target Dates, never been a fund of funds. Again another silent mouth to feed.
401k most have limited investment choices, IRA opens up a whole other world to invest in.
IF people aren't disciplined investors but are fear/greed investors, neither a 401k or IRA can keep them from moving funds around. They still have the freedom of shooting themselves in the foot.
Perhaps you have a video on the subject but if not a discussion about RMD's starting at age 73 (for me) would be a good topic along with possibly pulling forward and converting it to a Roth.
Here’s what doesn’t make sense to me. Target date funds return on average 1/2 of the return the S&P 500 does but their expense ratio is sometimes 10 times more than you’ll pay being in the S&P funds. Target date funds have no guarantee of return and often go negative.
They say the extra fees are the cost to keep the target date funds balanced! But what good is a “balanced” fund if it continually lags way behind a basic index fund? You pay more and you get less, no matter how you slice it.
Here is one thing target date funds are good at, great profits for the Fidelity and Vanguard shareholders!
Would you really go with a financial advisor you found on google?
Great Intel Azul. I am going to reassess these fees. I also learned that having a fiduciary advisor may not necessarily mean that all of ones investments fall
under this. Can you elaborate on this, please? Your videos rock.
“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn't … pays it.” ― Albert Einstein
Hello Azul, I enjoy your videos. Can you tell me if I can deduct our financial advisor fees
There have been many lawsuits recently over 401k fees forcing employers to choose lower fee options. Fees are generally much more reasonable and also there are more lower fee options.
Mr Wells, you're one of the best! Thanks for your erudite, informative and balanced videos!
I only do the job match. All rest goes into roth after 6500. Think 401k is a scam. All the fees and the aka target date fees etc. yet return is lower then. Just generic index fund.
gold is a purely speculative investment. 100% of its value is extrinsic, no intrinsic value at all.
Do this: compare the returns (of lack of) of the Target Funds vs. the S&P500 index. In my case with Fidelity none (NONE!!) of the TF did better. and worse in 2022. If you're offered an Index fund go for it. TF are a scam, managed funds with higher fees.
Well, one thing I've done fairly good on is the 401k investments. I've never done any panic selling/reshuffeling, and most of my money is in broad market index funds such as an S&P 500 index. Which for me and my goals and risk tolerance is a pretty good long term strategy. I may not beat the market, but I don't under perform the market either 😉 Market meltdowns or booms don't bother me, they're just noise. Another boom or bust is always coming and a noob trying to predict them is a great way to buy high and sell low.
I have 100% of my 401k allocated to VOO through Fidelity BrokerageLink. It cost me $0 to open, $0 to buy, and 0.03% (VOO expense ratio) to maintain.
Target date funds are way too conservative in their investment mixes.
thanks!! I think I will not do it alone and look for a FA