Now, this is a family blog, so I know that you know that acronym doesn’t stand for anything that would be inappropriate for young ears. If so, please take your mind out of the gutter. It stands for “What the fee?” in reference to mutual fund fees.
I have known for a while that the funds my employer offers through the 401k are stinkers. The funds are horrible performers, rarely beating the indices. I am a diligent saver, so I have over 200K* in my account, but I really dislike the plan. I tried to figure out how to move my money out, working up a scheme where I would quit, roll my 401k over to a decent fund family and then be rehired. My employer was less than thrilled about my idea. So, I told them what I thought of their mutual funds and trudged on.
Now, I find that I have even more reason to hate my 401k. I have often read about how mutual funds with high fees can really cut into your retirement savings, but never have given it a second thought. I know that my employer offers under-performing mutual funds, but I still never thought much about it beyond that. Regarding fees, I always thought, “big deal, what is a percent or two going to amount to?” Turns out, a whole lot, but more on that in a moment.
A couple months ago, I was reading the excellent Financial Samurai blog and noticed how Sam kept mentioning a service similar to Mint called Personal Capital. Lots of people know about Mint, but after having used Personal Capital for a while, I think it’s better. Way better. If you haven’t checked it out, its a bad-ass** tool for keeping track of your finances. Best of all, it’s free.
Anyway, I was playing around with one of their calculators and discovered something that blew my mind. Check out the picture below. I’ll give you a moment to pick up your jaw:
Here is the same picture, but with some commentary:
I don’t even know where to begin, so I’ll just focus on one number: $594,993. This is the amount I’ll pay in fees up until age 65. So, I’m paying some Wall Street fat cats more money in fees than most people will save for retirement to underperform the indices. ARRRRRRRGH!!! The horror, the horror!
Another thing to consider is that this graph only goes up to 65. If I live to a ripe old age of say 80, I’ll pay over $1,000,000 in fees.
This isn’t the whole truth though. The day I quit, I’ll roll my money out of this stinker of a 401k that I have now, so it won’t be nearly as bad as it seems.
However, I wonder how many people never stop to consider their funds’ fees? If you haven’t, drop what you’re doing and get over to Personal Capital. You may be surprised by what you find.
UPDATE #1!: It gets worse! Done by Forty mentioned in the comments below that some plans now charge fees above and beyond the mutual fund expenses. I looked into mine and guess what:
UPDATE #2: In the comments, James pointed me to an excellent write-up by Jim Collins regarding 401k fees. It is a must read: http://jlcollinsnh.com/2013/06/28/stocks-part-viii-b-should-you-avoid-your-companys-401k/
*You may ask why I have such a large amount in my account if the funds are bad. They were good at one point, but recently, my employer switched their provider of HR services. The funds also changed at that time.
**I’m referring to the animal. Again, this is a family blog, fit for readers of all ages.
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