Almost 40% of Our 401(k)s Lost in Fees


h/t Paul Buchheit

Based on the 6% historical stock market return, an individual investing $1,000 a year for 30 years in a non-fee fund and then holding the accumulated sum for another 20 years would end up with $269,000. Imposing the industry average 1.3% fee would reduce the final total to $165,000, a 39% reduction.

In other words, almost $2 of every $5 in potential 401(k) earnings is lost because of bank fees.

The importance of preserving Social Security becomes even more apparent in light of this 401(k) exploitation. Since 1983, the number of private sector workers depending on a 401(k) instead of a company pension has increased from 12 percent to 68 percent.

It’s an old joke on Wall Street.

An out-of-town guest was given a tour in New York. The guide pointed out the beautiful yachts in the harbor and said “Look, those are the bankers’ and brokers’ yachts.” The guest asked “Where are the customers’ yachts?”

  1. #1 by brewski on December 2, 2013 - 12:07 pm

    The Charles Schwab S&P 500 Index Fund has a net expense ratio of 0.09%.

    If you paid any more than 0.09% then you are an idiot.

    Your 1.3% figure is the idiot number.

    Also, the S&P 500 Total Return over the last 40 year time period is 10.682%.
    November 1973 through November 2013

    So your calculation of 1.3% / 6.0% should actually be 0.09% / 10.682%

    this equals 0.84% of your total return.

    Not exactly 39%.

    You must feel pretty stupid right about now.

    • #2 by Richard Warnick on December 2, 2013 - 1:06 pm

      Of course you must realize that where you can invest 401(k) money is controlled by the employer. (1) Not everybody can put their money in an index fund, and (2) often there are fees not counted in the expense ratio.

      Not Included in Fund’s return or in its expense ratio
      Front-end sales load
      Back-end sales load
      Transaction fees
      Redemption fees
      Account Maintenance fees

      But you knew that, you’re just trying to mislead as usual.

      S&P 500 real total return, adjusted for inflation, averaged a measly 5.34% for the 1960s through the 2000s. If you include the 1950s, you get 7.0%

      • #3 by brewski on December 2, 2013 - 2:19 pm

        Not one thing I said is misleading.

        I have never worked anywhere where index funds were not an option. In fact, they were encouraged.

        If you pay any of those other fees you are an idiot.

        So now you want to start playing games with real vs nominal returns? If that is the case then you need to adjust all of your contributions over your life to be your real contributions and not your nominal contributions.

        But you didn’t already know that, since you are out of your depth.

        By the way, I have been a Trustee of 401K plans and I made damned sure that all the fund options had zero fees and razor thin expenses.

      • #4 by Ronald D. Hunt on December 2, 2013 - 2:24 pm

        Also note, the employer gets no benefit from choosing a good plan, merely having a plan is good enough to receive the tax benefit.

        And in fact often enough the employer will choose a bad plan, one that either invests those dollars right back into said employer, or with a plan that’s provides “sales benefits” to that employer.

        • #5 by brewski on December 2, 2013 - 2:42 pm

          Tax benefits? What tax benefits? The employer receives zero tax benefit on the employee contributions and receives the identical tax treatment on the employer match (if any) as it does for salaries.

          As for buying company stock, no one is ever forced to do that with their own contributions.

          As a Trustee for 401k plans, I never saw any sales benefits to the employer. I’d like to see your source for this.

          • #6 by Ronald D. Hunt on December 3, 2013 - 4:53 pm


            Buying company stock, your an idiot, you buy whatever your employers plan forces you to buy, their is more then one company who setup their own fund for 401K’s(GM for example).

            “As a Trustee for 401k plans”,

            gee their any position you don’t hold?, kick backs are a common industry practice, generally not in cash, but in other in kind favours.

          • #7 by brewski on December 3, 2013 - 8:10 pm

            Please learn the difference between “there” and “their”, as well as “your” and “you’re”. You look like an uneducated idiot.

            You doubt that I have been a Trustee for a 401k plan? Why would you doubt that? It’s a job. People do it. That is what highly educated qualified experienced professionals do.

            Your link just proved what I already schooled you on. Thanks for the confirmation that I was right. I appreciate your help.

            As for being “forced”, I have worked for all kinds of companies and not once did any of them force me to do anything. Their 401k plans offered zero fee and razer thin expense ratios. Can you show me what companies “force” employees into high fee plans?

            Show me your source for these “sales benefits” or shut the fuck up.

  2. #8 by cav on December 2, 2013 - 1:09 pm

    Can’t argue with the ‘Math Meds’ ™.

  3. #9 by Larry Bergan on December 5, 2013 - 11:23 pm

    Pretty boats in the picture though!

    Maybe soon, they can sail the seas donning men without a country.

    Well, perhaps Dubai or Gilligans Island.

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