Most of us with 401(k) plans watched in horror as our retirement savings plummeted in the stock market crash of 2008. That year, the average 401(k) balance dropped by a third, forcing older Americans to delay retirement or cut back on spending. Since then, as the market rebounded, some of our savings have recovered in fits and starts.
The crash showed one serious downside to 401(k)s: their complete exposure to the wild swings of the market. But what you may not realize is that even when the stock market is zooming ahead, hidden fees take an unacceptably high share of your investment return.
If your immediate response is, "Oh, I know how much my 401(k) is costing me," then you're one of small numbers of Americans who's in the know.
According to a recent AARP survey, 71% of people with 401(k)s didn't even know they were paying fees for their retirement accounts.
So how much do these fees really cost you?
The answer may shock you. Fees can, on average, reduce your 401(k) balance by up to 30%, regardless of whether you have $1 or $1 million in your retirement account.
You may wonder -- is 30% a big deal? Yes.
Let's look at a hypothetical model of say, an average two-earner household where the combined earnings is between $50,000 and $70,000 a year over the course of 40 years (from ages 25 to 65).
This couple, unlike most Americans, consistently saves between 5% to 9% of their salaries each year and put that money into a 401(k) account, gradually increasing their yearly contribution over time. And atypically, they never have to withdraw from this account. They invest their 401(k) account equally in a stock mutual fund and a bond mutual fund, each of which charges average market fees.
For the full report: The Retirement Savings Drain: Hidden & Excessive Costs of 401(K)s
