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Monday, March 3, 2014

Make Your 401(k) Administrator Read This Article

Along with many others, I have been pounding away at the importance of fees for nest egg accumulators.  Happily, these efforts are paying off; and more and more is being written on the impact of fees.  Sadly, however, many of the decision-makers (read plan administrators) still don't know what they are doing and select highly priced funds for company 401(k)s.  So, to make this real easy, copy the article at this link

Give Fees an Inch, and They'll Take a Mile

by Jeff Sommer in the New York Times, 3/2/2014.  Note, also, that the article has the following important link to a Securities Exchange Commission bulletin

How Fees and Expenses Affect Your Investment Portfolio

In the SEC bulletin article, you'll find the following table:

Source: Securities Exchange Commission

CLICK TO ENLARGE.  The chart shows that, on $100,000 over 20 years, a seemingly small 1% fee will take $28,000 from the nest egg. Assume 4% growth in the foregone funds, and it costs another $12,000.

Plan administrators need to understand these numbers and at least offer inexpensive funds to plan participants.

Many individuals have a broader problem, of course.  You may have rolled over IRAs and taxable accounts.  Understanding how fees affect the overall structure of these accounts over the long-term and minimizing these fees are one of the best ways to use your time in preparing for retirement.  If you are a bit shaky in this area, find a fee-only financial advisor and get hourly consultation on your overall fees.  Again, it could be one of the best investments you ever make.

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