This fee can be anywhere between 0.05% to over 2% depending on the fund. There are additional fees - administration fees and others - that may be associated with your 401(k) plan. Though this may seem insignificant, these fees eat away at returns over the long term.
|Your Total Investments||How Much a 1% Fee Reduction
Could Save You Annually
Despite these fees, a 401(k) is often an attractive option, given its tax advantaged status and employer matching features. Under employer matching programs, employers will match an employee's contributions to a fund in part or in full. This can be a very good deal - doubling your savings in the best case - though matching is often capped at around 7% of salary and is not always 100%. For example, if your employer is able to match your contributions up to a certain level, you receive a 100% return on that money the moment you can invest it. Clearly, that sort of value will outweigh the impact of any fees, even in the short term. We firmly recommend taking advantage of 401(k) matching when available.
Below is an approximate guide of relatively low fees in the context of a particular asset class. Note that we are not identifying the absolute lowest-cost funds, but sharing a rule of thumb for relatively good value investments by asset class. Prices from providers can change, but providers such as Vanguard, iShares, and Schwab have historically offered some of the lower cost funds. Recall, at FutureAdvisor, we monitor a range of academic research and have found a general pattern suggesting that lower-fee funds tend to outperform higher fee equivalents.
If your 401(k) fees appear too high and you are no longer with your employer, then consider a rollover to enable you to invest in a broader set of options with likely lower fess. If fees are high, but your employer offers generous matching benefits, then the matching benefit may outweigh the relatively high fees.
|Asset Class||Approximate Level for Low Cost Fund|
|US Fixed Income||0.15%|
|International Fixed Income & Real Estate||0.40%|
The period of saving itself may be a challenge if you have a college education that is funded through debt. However, if you can earn an extremely high income in your 20s and save the vast majority of it, as well as living in a relatively frugal retirement, a retirement at 30 may be conceivable. In this scenario the retirement period is so long that you would need to essentially live of the real return on your savings, rather than eating into the value of your capital.