AARP Offers Tips to Minimize Impact of Fees on Retirement Savings

In an AARP survey, more than eight in ten (83 percent) 401(k) plan participants were found to not know how much they pay in fees and expenses associated with their plan. The survey, "401(k) Participants' Awareness and Understanding of Fees," also found that more than half of 401(k) plan participants do not feel knowledgeable about the impact that fees can have on their retirement savings.

"With Americans more responsible than ever for making better choices to secure their financial futures, financial literacy and an understanding about those decisions is increasingly important," said David Certner, Legislative Counsel and Policy Director for AARP. "Consumers need to get more informed and ask questions. In return, plan administrators are going to have to be more transparent and make the necessary information about 401(k)s readily available to plan participants."

Plan participants often find the investment choices their plans offer, as well as the fees and expenses associated with them, incomplete and confusing. 401(k) plans typically include three types of fees: investment fees, administrative fees and individual fees. These fees can cover the management of investments to operational expenses to optional individual services and can significantly deplete one's nest egg. Little known to consumers, various fees -- that can typically account for as much as 0.75 percent a year, according to a Deloitte survey -- can reduce retirement savings by about 15 percent after 20 years.

  When considering any 401(k) plan, AARP offers the following tips:
  1. Do Your Homework -- Ask the administrator of your plan about any fees
     associated with specific choices. Compare the fees of various funds in
     a class and look for those with lower expense ratios.
  2. Talk To Your Human Resources Representative -- If you find that your
     plan contains high-cost funds, ask HR to review the fund offerings and
     consider switching to those with lower costs.
  3. Make Saving a Priority -- Focus on saving, not spending your retirement
     savings. Individual fees from loans, wire transfers and hardship
     withdrawals can significantly deplete your retirement savings
  4. Consider No-Load Mutual Funds -- Most plans offer several mutual funds
     to choose from. Select no-load funds since they don't charge a sales
     commission.
  5. Consider Index Funds -- Index funds are composed of stocks that mirror
     a particular stock index, such as the S&P 500. These funds tend to
     outperform the average fund, and generally have lower fees due to less
     trading and need for portfolio management.

AARP

AARP is a nonprofit, nonpartisan membership organization that helps people 50+ have independence, choice and control in ways that are beneficial and affordable to them and society as a whole.

Source: AARP

Web site:
http://www.aarp.org/
http://www.aarp.org/401kfees