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How To Use Our 401(k) Expense Ratio Calculator
Under "Starting Investment," enter the initial amount you have invested in your 401(k), if any. If you're just starting out, this value could be zero.
Under "Annual Contribution," input the amount you plan to contribute to your 401(k) each year.
In the "Annual Increase in Contribution (%)" field, enter the percentage you plan to increase your contributions each year. This could account for inflation or an anticipated increase in your salary.
Under "Years of Investment," enter the years you plan to keep investing in your 401(k). This could be until your retirement age.
In the "Estimated Annual Return (%)" field, input the annual return you expect from your 401(k) investments. This is typically between 5% and 10%.
Under "Fund Expense Ratio (%)" and "Administrative Fees (%)," enter the fees associated with your 401(k). These values can be found in your 401(k) plan's documents.
Finally, under "Other Fees and Commissions (Annual Flat Rate)," input any other annual fees associated with your 401(k).
The calculator will automatically update and display the total cost of fees, lost earnings due to fees, and your ending balance with current and reduced fees.
Why We Made a 401(k) Expense Ratio Calculator
For many investors, 401(k) fees are an unseen drain on their retirement savings. These fees, often overlooked or misunderstood, can accumulate significantly over the course of a career.
In fact, if you have a long time horizon, the total cost of high fees can equate to the price of a nice home!
This calculator was created to shed light on these hidden costs and help investors understand the long-term impact of 401(k) fees on their retirement savings.
To put it into perspective, consider this: small businesses can face 401(k) fees as high as 2%. If the market returns an average of 8% and inflation takes away another 3%, you have a net return of around 5%.
If your 401(k) fees amount to 1%, 20% of your returns are gone! If the fees are 2%, that's a staggering 40% of your returns eaten up by fees.
This calculator also underscores the value of investing in low-cost index funds. Active funds often incur higher fees, which aim to beat the market. Despite these higher costs, they have yet to outperform index funds consistently.
By investing in high-fee active funds, you're taking a gamble. You're guaranteed to pay higher fees, but higher returns are not guaranteed (and research suggests you will likely end up with lower returns).
For a detailed guide on getting started investing, whether it’s in a 401(k), IRA or taxable account, please read: How to Start Investing for Beginners (a Step-By-Step Guide).
Other articles to check out include:
- How to Invest for Retirement In Your 20s, 30s and 40s
- Why Your 401(k) Is Losing Money (And How to Stop It)
- How to Invest with Little Money (Just $50 Per Month)
