Let’s hear it for a bit of good news for retirement savers.
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.
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
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.
Each mutual fund or ETF has a prospectus that details its expense ratio, typically in a section called “Annual Fund Operating Expenses.” These documents can be found on your 401(k) provider’s website. If you can’t find the information, contact your 401(k) plan administrator, who can provide the fee details or guide you to them.
One additional resource: The Financial Industry Regulatory Authority (FINRA) provides a fund analyzer on its site to help.
My two cents: Keep the low expense trend going by choosing index funds or other low-expense options with expense ratios below 0.5%.
Kerry Hannon is a Senior Columnist at Yahoo Finance. She is a career and retirement strategist and the author of 14 books, including the forthcoming “Retirement Bites: A Gen X Guide to Securing Your Financial Future,” “In Control at 50+: How to Succeed in the New World of Work,” and “Never Too Old to Get Rich.” Follow her on Bluesky.
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