Retirement Theft

The past few weeks I've talked to various fifty-something members who have a lot of years and cash in Guild retirement accounts, but aren't old enough to cash in. Some are still employed and hanging on to their long-time profession, and some are encountering longer stretches of down-time and wondering what they're going to do for the next fifteen years of their working lives. But no matter where somebody is in their career, they should be aware of this:

... A new study finds that the typical 401(k) fees — adding up to a modest-sounding 1 percent a year — would erase $70,000 from an average worker's account over a four-decade career compared with lower-cost options. To compensate for the higher fees, someone would have to work an extra three years before retiring.

The study comes from the Center for American Progress, a liberal think tank. Its analysis, backed by industry and government data, suggests that U.S. workers, already struggling to save enough for retirement, are being further held back by fund costs.

"The corrosive effect of high fees in many of these retirement accounts forces many Americans to work years longer than necessary or than planned," the report, being released Friday, concludes.

Most savers have only a vague idea how much they're paying in 401(k) fees or what alternatives exist, though the information is provided in often dense and complex fund statements. High fees seldom lead to high returns. And critics say they hurt ordinary investors — much more so than, say, Wall Street's high-speed trading systems, which benefit pros and have increasingly drawn the eye of regulators.

Consider what would happen to a 25-year-old worker, earning the U.S. median income of $30,500, who puts 5 percent of his or her pay in a 401(k) account and whose employer chips in another 5 percent:

— If the plan charged 0.25 percent in annual fees, a widely available low-cost option, and the investment return averaged 6.8 percent a year, the account would equal $476,745 when the worker turned 67 (the age he or she could retire with full Social Security benefits).

— If the plan charged the typical 1 percent, the account would reach only $405,454 — a $71,000 shortfall.

— If the plan charged 1.3 percent — common for 401 (k) plans at small companies — the account would reach $380,649, a $96,000 shortfall. The worker would have to work four more years to make up the gap. (The analysis assumes the worker's pay rises 3.6 percent a year.) ...

Over the past two years, trustees of the TAG 401(k) Plan have pushed to get fees down. As of August 1st, the TAG 401(k) Plan will be administered by Vanguard Mutual Funds. Our fund selection won't change very much, but overall costs will be lower.

Long term, this will mean participants have more folding money in their wallets when they step off the work merry-go-round and spend more time on the front porch, thinking deep thoughts.