Sunday, October 26, 2014

401k fees....Do you really know how much you pay?

Now, this topic is often times discussed in the media, but does an average John Q. Public (in our case, JQ Public, MD) know what exactly he/she is paying for a privilege of having  his retirement money to be exposed to the vagaries of the market?
My unscientific poll of my colleagues shows that 99%  of them are oblivious. Seeing the outrage on my face when I spoke about those fees, they politely  nodded their heads, but that was it.
To me, the asset-based fee of 0.33% PLUS monthly maintenance fees (that's what our 401k plan extracts-if not expropriates) amount to nothing less than a highway robbery.
Given the market projected return (risk premium, on top of risk free rate of 2.5% delivered by Treasuries), the asset based fee alone amounts to at least 10% of return!!
And we are not even talking about the expense ratios f the funds contained in 401k (average expense ratio is about 1-1.3%).
So right there, we're giving up close to 50% of potential return, while owning the 100% of risk.
But what else is there for retirement vehicles for middle class? (gasp)