In an article published on Fidelity’s website, there is a detailed description of the new regulations written by the Department of Labor back in February. 401K custodians are going to start including much more information about fees in up-and-coming statements mailed to clients.
More of the shocking statistics that I have mentioned before are published in this article:
- A poll showed that 71% of 401K participants don’t think they pay any fees
- Less than 5% of employees using workplace investment plans make a concerted effort to manage their 401K plans.
Reading the rest of article shows a clear focus on fees. It celebrates that these new regulations will bring fees to the forefront, because active investors may realize the costs of their choices and shift to alternative funds with lower costs. But it hesitates on the subject of passive investors, since they aren’t sure about them. (I think I know how people that don’t read statements will react to more unread information.)
Crosschecking with reality
Indeed, it may allow you to save up TWICE THE AMOUNT that an actively managed fund can after years of saving, but it doesn’t answer the right question: Will this strategy be enough to truly retire and not end up working at Walmart?
Planning with the end in mind
Don’t forget that a wealth building plan needs to be able to handle life’s rocky bumps in the road that will definitely happen. We will hit various things that will force us to scale back or stop saving money at certain times. The plan also needs to factor in things like systemic risk, our desire to sell when things go bad, taxes, and inflation. I can definitely tell you at 1.8% isn’t going to count for much even if you only consider taxes and inflation. Throw in other risks, and it only gets worse.
If there is another strategy that will build enough retirement wealth despite the hard knocks we may face, then what difference does it make what the fees are? The end result is what we need to be looking into, not the costs along the way.