This Week in Your Wallet: Finding 401(k) Fees
Do you know what fees your 401(k) carries? Better yet, do you know how those fees are impacting your retirement savings?
If your answer is “no” to either question, you’re far from alone. However, a recent New York Times article highlighted just why it’s important to stay on top of what fees might be associated with your401(k) plan:
“Consider a worker with a 401(k) balance of $25,000 who earns 7 percent over the next 35 years. If this person paid 0.5 percent in fees, even if she stopped making new contributions, her account would grow to $227,000 at retirement. But if she paid fees totaling 1.5 percent, her savings would rise to only $163,000, or 28 percent less.”
That’s no small chunk of change, yet many people have trouble applying the math to their own accounts — in part because employers aren’t providing them with enough information, and in part because they don’t know what questions to ask their employer or plan administrator. If you’re concerned about the fees impacting your own retirement savings, here are some of the most essential questions to ask yourplan administrator, courtesy of the Department of Labor:
- Can you provide documentation about the fees charged with this plan?
- If the administrative fees are separate from the investment management fees, who is paying for them: me or my employer?
- What sales charges are associated with the investment options?
As the Times article notes, if you discover that you have a plan with poor quality and high-cost investments, it might be time to roll that 401(k) into an IRA. If that looks like your best bet, just be careful about the IRA you roll into: a recent report by the Government Accountability Office found that investors are sometimes pressured to roll their money into an IRA offered by the same company behind their 401(k). And if you’re confused about what to do, I’d recommend talking to a fee-only financial adviser — they should be able to give you an unbiased opinion without a side of hefty commission fees.
And now, here are the other headlines for the week…
Optimistic Investors
Despite those annoying 401(k) fees, investors are feeling optimistic these days — or so says a new survey by Wells Fargo and Gallup. Specifically, 43 percent say that they’ve benefited somewhat or a lot by the market’s recent increases, and 49 percent believe that the market increases benefit the average American. While these signs of optimism are good, one number that I was particularly glad to see was this: the survey also found that 86 percent of investors who have a written investment plan have reviewed that plan in the past year. I’ve written before about how a written plan can help you stay on track (and avoid making rash decisions with your investments), and I’ll reiterate that point here: not only does having a written plan help you stay the course, but it helps keep you and your financial adviser stay on the same page, too.
Buying Generic, Even for Medicine
When you need some Advil or Tylenol or even Sudafed, do you reach for the brand name or do you grab the generic? According to a recent analysis by the Nielsen Company, it’s the name brand that gets our attention (and cash). While this may not sound like a problem, opting for the Bayer Aspirin over the Walgreens- or CVS-branded aspirin means we’re leaving significant amounts of money on the table — a total of $410 million (for all consumers) per year.
As most doctors and pharmacists will tell you, generic medicines have the same active ingredients as their name-brand counterparts, and can cost significantly less. Typically, you can verify the ingredients by comparing the labels on the two bottles, but if you’re unsure about making the switch, talk to yourdoctor or pharmacist first.
Sticking To Your Reno Budget
That’s “renovation” budget, for those of you who don’t get sucked into watching HGTV on lazy Sundayafternoons. And whether you’ve been recently inspired by “Love It Or List It” or have decided that Summer 2013 will finally be the year you re-do your basement, I have the article for you, courtesy of Money magazine: ways to stay under-budget when renovating your home. Among the best tips: limit major construction (moving or removing walls will cost you $3,000 to $5,000), do the easy stuff yourself (DIY painting can save you $1,000 per room), and — this is my favorite — ask local appliance retailers about scratch-and-dent sales. If the damage on the appliance is on a “low visibility” spot, you could save $200 to $1,000 per appliance. Depending on the number of appliances you’re replacing, this could lead to big savings!
Have a great week!
Jean
