If you thought the investment alternatives and services offered in your 401k plan were free; think again! Fees and expenses are one of the major factors that will affect your investment returns and will impact your retirement income. Your account balance will determine the amount of income you will withdraw at retirement. Fees and expenses paid by your plan may substantially reduce the growth in your account and subsequently reduce the amount of income you will have when you stop working.
There has been a dramatic increase in the number of investment options and services typically offered under 401(k) plans. These include alternative investments and services such as telephone voice-response systems and access to customer service. As a 401k participant you may welcome this increase in options, but you must be aware of their costs because the cumulative effect of the fees and expenses associated with the investment choices can have a substantial impact on your retirement savings.
There are plan administration fees which include record-keeping, accounting, legal and trustee services. These costs can be paid by investment fees that are deducted directly from your investment returns. Otherwise, these expenses will be paid for by your employer or charged against the assets of the plan (your money), and the more services that are provided, the higher the fees.
By far the largest fees and expenses associated with your 401k plan are investment fees. Whether you believe or not, someone or some company is getting paid based on where you choose to invest your retirement money inside your 401k. Fees for investment management are charged as a percentage of your investable assets. You should be aware of these fees. They’re costing you retirement income down the road.
Since these charges are not specifically identified on your investment statement, these investment fees are not obvious. They tend to be unclear and non-transparent, but you pay for them in the form of an indirect charge against your account balance. These fees come in many forms including sales charges, loads and commissions. Keep in mind, your net total return is your return after these fees have been deducted. These fees make a difference. The larger these fees are, the less money you will have at retirement (all else being equal).