Do you know, do you really know, what you pay for your retirement plan? If so, consider yourself a minority. A recent survey found that more than half of Americans (57%) believe they pay no “fees” or “very low fees” for their 401 (k) plan at work. Nearly an additional quarter of those surveyed said they “don’t know” what they pay.
It joins three out of four retirement savers who don’t know what their retirement plan costs them, year after year. The reality, of course, is that everyone pays investment fees for retirement, and those fees are quite steep for many savers. The average employee who works for a small business pays 2.22% per year in plan costs, according to the latest edition of the 401k Book of Averages. As we’ve heard from our small business owner clients for some time now, and these survey results show, there is a worrying trend in the financial services industry of investment professionals charging outrageous fees. Unfortunately, many hard working Americans are not getting the expected returns on their investments due to the high fees associated with their 401 (k) retirement savings. This is because fees are deducted from retirement plan balances every three months. The percentage you are charged is based on your total balance, not your investment performance. As a result, even a number like 2% is a much larger part of your investment performance in any given year. It also means that if the SPX stock market, + 0.36% is flat for the year, your 401 (k) balance decreases. That makes fee reduction an important goal for any retirement saver or small business owner looking to keep more of their money working for them, rather than plan providers, fund managers, or investment managers. Larger US companies, which enjoy economies of scale when it comes to employee services, typically pay 401 (k) rates of less than 1%. Getting the same deal from a small business 401 (k) plan has historically been difficult – until now. Fortunately, fundamental changes in the small business 401 (k) market have brought better and more modern approaches to retirement planning. It is up to any business owner to review their plan and ask their provider if the current rates are in line with the market. More survey results: Impact of COVID-19: Respondents indicated that COVID-19 has had an effect on retirement savings as 66% of respondents have changed their approach to investing for retirement as a result from the pandemic, with 62% saving more for retirement as a result. Lack of knowledge: Limited understanding of how your money is invested within your retirement account is another common theme, and 51% of respondents are unsure of the breakdown of their investments between stocks and bonds. Anxiety about investing: Americans are anxious about their ability to afford a comfortable retirement. If they could go back in time, 84% would want to learn more about investing earlier in life, while 89% would want to invest more in retirement accounts earlier. (The results come from a survey Rebalance commissioned from a national survey of retirement costs in early February. It included 1,016 American adults ages 45-75.) Scott Puritz is a managing director and a member of the investment committee at the wealth management firm Rebalance. Follow Scott on Twitter @ScottPuritz.