Icon

Savings and Investing

Life Changes

The impact of high fees on savings

We often associate high cost with high value, and while this can work for cars, phones, and other goods and services, it is not true for the fees you pay to manage your investments. In fact, high fees have a corrosive impact on your savings.

Over time, high fees will eat away at the value of your account, leaving you with less money in your retirement years. To understand how fees affect you, the individual investor, consider the following example:

Types of fees

If you are in an employer-sponsored plan such as a 401(k), 403(b), or 457 plan, you can expect to pay the following fees.

Investment fees. These are the fees charged by mutual fund companies to pay for the costs of managing 401(k) plan investments. These are the largest fees you pay and are charged annually as a percentage of your account balance.

A typical percentage is 0.63%, but it isn’t uncommon to find fees ranging from the low end of 0.25% to well over 1.3%.

Plan administration fees. These are the expenses involved in the day-to-day operation of running a 401(k) plan, including recordkeeping, accounting, online access, and customer service. The administration fees may be charged by the financial company that manages your plan investments (the “plan provider”) or by an outside company hired by your employer to handle the administration of the plan.

 

* All figures in 2012 dollars. Workers are assumed to begin saving at age 25 and retire at age 67. Example reflects median salary of $30,502 when worker starts saving at age 25. Example provided by CAP.
NEXT UP The impact of high fees on savings How much can I contribute to my plan? What’s an ETF? Why Asset Allocation Matters Everything you Need to Know about Icon’s Fees What investments are available through Icon? Why do I need to answer a suitability questionnaire My employer is offering Icon. How does it work? Employer matching contributions–Don’t leave anything behind! Auto-escalation–A great idea The impact of high fees on savings How much can I contribute to my plan? Find out why it’s important to review your statement Save early and often What’s an ETF? High fees can erode your savings Annuities–What you need to know The basics of stocks and bonds Why Asset Allocation Matters The Savers Tax Credit – Are you taking advantage of it? What is a health savings account? A close look at Social Security Student loans feel like a weight When can I use my savings in retirement ? Emergency Savings Plan – What’s your plan? Do you receive a Form 1099? What you need to know Paying taxes as an independent contractor What if I want to take money out before I retire? What happens if I get fired or laid off? Naming a beneficiary What do I do with my 401(k) when I change jobs? Thinking of consolidating old 401(k) plans? Reserve mortgages, how do they work? Disability insurance, a great safety net Why it’s a good idea to have a will Using your home equity–Things to consider A close look at Social Security Student loans feel like a weight Emergency Savings Plan – What’s your plan?