Retirement Plan Fees Consume 30% of Assets

May 30, 2012 | | Plan Sponsor |

 

Retirement plan fees consume nearly one-third (30.3%) of an investor’s potential assets, a paper contends.

According to the fee model used for “The Retirement Savings Drain,” published by think tank Demos, a two-earner household, in which each partner earns the median income for their gender each year over their working lifetime, will pay an average of $154,794 in 401(k) fees and lost returns. A higher-income dual-earner household, in which each partner earns an income greater than three-quarters of Americans each year, can expect to pay an even steeper price: as much as $277,969.  

Demos found the median expense ratio of mutual funds in 401(k) plans was 1.27% in 2010. Trading costs vary from year to year, but have been estimated to average approximately 1.2% per year as well.  

The paper says the average mutual fund earns a 7% return, before fees, matching the average return of the overall stock market. However, the post-fee returns average only 4.5%, meaning that, on average, fees eat up over a third of the total returns earned by mutual funds.