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What you Need to know about 401k investment related costs


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This infographic provides insights into what we really dont know about the effects of investment related costs in 401k plans, and what you can do about it.

Published in: Economy & Finance
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What you Need to know about 401k investment related costs

  1. 1. WHAT YOU NEED TO KNOW ABOUT What you can and should do about it Ask your current provider for a copy of your 408b2 employer fee disclosure report. Its required you are provided one and its required you read it and understand it. (we’ll help you here). 1 4 Don’t let any provider or salesman tell you that your company is too small and does not “qualify” for the lowest cost investments possible. Nothing can be further from the truth. Every American worker has the same rights as any other. If you are told this, start a process of changing or considering other options/providers. 2 Get a clear determination as to the average expense ratios of the investment options in your current plan and be sure to understand if any additional asset based fees are being added (most plans with insurance companies will add these, further eroding your savings). SOURCES: LET US HELP Visit to request a proposal or plan analysis Or call 855.905.4015 3 Begin the process of benchmarking your 401k plan against alternatives as rapidly as possible to determine if your fees are reasonable and prudent. (we’ll do this for you at no charge). Forbes LIMRA PlanSponsor PLANSMATH THE OF 401k ................... ............. 32% of Participants don’t understand the effect fees will have on their retirement savings over time 32% 38% 38% of Sponsors with plan assets under $25M don’t know the average expense ratios of the funds in their plan 40% 40% of plan participants believe they pay no investment related fees at all 50% 50% of Participants do not know if there are investment related fees in their 401k WHAT WE DON’T KNOW What we REALLY don’t know EXAMPLES - THE EFFECT OF FEES OVER TIME For your assets that are invested, you must know how the costs of your investments are affecting your returns over time ................. ............. ................. ............. .............. The expense ratio is frequently the only cost that many investors believe they pay when owning a mutual fund Nothing is more Important regarding your money than knowing how much you have and where it is Depending on the funds you have, transactions costs (brokerage commissions, market impact costs, spread costs), Tax Costs, Cash Drag, Soft Dollar Costs and Advisor fees may cause your real cost of owning a fund to be 3+ times the expense ratio. LET’S GETREAL They are paying 2.00% in investment related fees. Using the same comparison to a plan with .75% in fees, with a 4% assumed return, the plan with 2.00% in fees will have lost ... #1 Pebble Cove Software Company has 20 employees. Their 401k plan has $1 Million in current assets and they contribute $100k into the plan each year. They currently pay 2.50% in investment related fees. Compared to a plan that has only .75% in fees, with an assumed return of 4% the plan with 2.50% in fees will have lost ... #2 Perfect Manufacturing has 60 employees. Their 401k plan has $3 million in current assets and they contribute $250k into the plan each year. over $20,000 over $1,080,00 over $201,000 over $2,200,000 over $42,000 over $218,000 PM P C S 1st Year 7 Years 20 Years 1st Year 7 Years 20 Years RETIREMENT SAVINGS LOST TO FEES let’s put this into an individual perspective Sally and Joe both currently have $80,000 in their 401k plan. They expect to work another 20 years when they will be 65. And contribute 10,000 per year to their 401k plan. Sally has investment related expenses of .52%. Joe’s are 2.25% At the end of 20 years, with an assumed 4% return, Sally will have over $484,000 in her 401k balance, while Joe, due to the higher fees will be just $349,000. $135,000 lost to fees. What might this mean at retirement? Let’s say both wanted to convert their 401k balances to a fixed annuity with an annual growth rate of 4% that would provide monthly payments for 20 years. Sally could receive nearly $3000 per month, while Joe only about $2100. Quite a difference in outcomes at retirement. STOP HAVING YOUR SAVINGS FLY OUT THE WINDOW But what about you? Every plan and person has different variables Give our fee analyzer a test at .. ................................. .... .............. ...............