Recently there’s been a brouhaha stirring over 401(k) retirement accounts. In a report entitled, The Retirement Savings Drain—The Hidden and Excessive Costs of 401(k)s—research firm Demos makes some startling claims about our beloved retirement accounts.
For example, the Demos report includes the following findings:
- Over a lifetime, fees can cost a median-income two-earner family nearly $155,000 and consume nearly one-third of their investment returns.
- A higher-income dual-earner household, one where 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.
- The median expense ratio of mutual funds in 401(k) plans was 1.27 percent in 2010.
Trading costs vary from year to year, but have been estimated to average approximately 1.2 percent a year as well.
Taken at face value, one might be inclined to shun 401(k) retirement plans like the plague. But there’s more to the story.
The Demos report brings to light a little known fact about mutual funds: The expense ratio does not include all of the fees investors will pay to own shares of the fund.