Here’s how the Labor Department describes the problem. Assume you have 35 years until retirement and your current 401k account balance is $25,000. If your investment performance averages 7% over the next 35 years and your expenses average 0.5% your 401k account balance will grow to $227,000 in 2047. However, if your expenses averaged 1.5% with no additional contributions to your account your account balance would only grow to $163,000. The 1% difference in expenses reduced your account balance at retirement by 28%. And, that is with a paltry starting balance of just $25,000. Bigger 401k account balances are impacted the same way, the numbers are just bigger.

Every dollar of expense is one less dollar you have available for reinvestment and your future use. Therefore it is critical that you obtain the data you need to create an extremely accurate spreadsheet that documents every penny of expense that is deducted from your accounts or billed direct to you. Your measuring stick is the percentage of your assets that are paid every year in the form of expenses to as many as five service providers. Continue reading →