Retirement savers are getting a boost from low mutual fund fees
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Retirement savers are getting a boost from low mutual fund fees
The average mutual fund expense ratios in 401(k) plans are at historic lows. A mere .5% annually over a 35-year span can cut your retirement account by $37,147.21. The expense ratio fee is subtracted from your investment returns. It’s not all that easy to suss out what you’re paying in fees in your 401(K) account. But it is possible with a little legwork. The Investment Company Institute (ICI) has compiled a list of the most popular 401(ks) for you to look at. It outlines the fees associated with your plan, including the expense ratios for each fund.
The average mutual fund expense ratios in 401(k) plans are at historic lows, according to a new research report from the Investment Company Institute (ICI).
Average equity mutual fund expense ratios paid by 401(k) plan savers have dropped from 0.76% in 2000 to 0.26% in 2024, according to the report.
Think that half a percentage point doesn’t matter? Here’s what it looks like in dollars.
Consider this: You’re 35 years away from retirement and have a current 401(k) account balance of $25,000. If returns on investments in your account over the next 35 years average 7% and fees and expenses reduce your average returns by 0.26%, your account balance will grow to $245,127.52 at retirement, even if there are no further contributions to your account.
Read more: Your guide to how a 401(k) works
If fees and expenses are .76%, however, your account balance will grow to just $207,980.31. The addition of a mere .5% annually over a 35-year span can cut your retirement account by $37,147.21.
“The long-term downward trend in mutual fund fees for more than two decades is great news for investors looking to secure their financial future,” Sarah Holden, ICI’s senior director of retirement and investor research, told Yahoo Finance.
Millions of 401(k) participants invest in equity mutual funds, including both active and index equity mutual funds, according to the report.
As for target-date funds, the retirement savings vehicle Americans can’t get enough of, their average expense ratio has also dropped dramatically over the decades, from 0.67% in 2008 to 0.29% now.
Reduced fees — even by slivers of a point — are consequential.
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The expense ratio fee is subtracted from your investment returns. They include what a mutual fund or ETF pays for management advisory fees as well as the cost of marketing and selling the fund and other shareholder services, transfer-agent costs, and legal and accounting expenses.
A 401(k) plan may deduct fees — both administrative and investment — from your account either as a direct charge or indirectly as a reduction of the account’s investment returns.
It all adds up to real money you’d much rather have to live on in retirement than pay out in phantom fees to a bank or brokerage.
Learn more: How to start investing in 6 steps
Finding the real cost
It’s not all that easy to suss out what you’re paying in fees in your 401(k) account. But it is possible with a little legwork.
Employers are required to provide both an initial and an annual fee disclosure notice to plan participants. It outlines the fees associated with your 401(k), including the expense ratios for each fund available within your plan.