The Advisor - May 2012

IMPORTANT NEWS FOR YOUR FINANCIAL AND PERSONAL FUTURE

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Sally Low-Fee vs. Susie High-Fee: A Comparison

To see how dramatically fees and expenses can affect your 403(b) or 457 plan account, take a look at two hypothetical retirement plan investors. Susie High-Fee was talked into a variable annuity by the insurance company rep who came to her school. She selected a large-cap stock subaccount from among the choices available through the variable annuity. Sally Low-Fee used the resources available at CTAinvest.org and investigated all the fees and investment options. She selected a large-cap stock mutual fund for her 403(b)(7) account.


* Reflects gross return minus expense ratio and minus $24 annual administration fee on the 403(b)(7) account.

** Assumes the investment is sold/surrendered within the 403(b) or 457 account and the balance rolled into another investment within the plan rather than distributed at retirement. The 403(b)(7) account has no back-end sales load. The 403(b) variable annuity has a surrender fee schedule reflected in the “if surrendered” balance.

Assumptions:

  • Both investments earn a gross (before fees) average annual rate of return of 6% and both participants contribute $3,600 a year. Rates of return are for illustration only and based on currently available information at 403bCompare.com. Your returns will vary. No taxes are taken into account.
  • Sally’s index fund charges an annual administration fee of $24 and has an expense ratio of 0.10%. There is no back-end sales charge.
  • Susie’s subaccount has no annual administration fee. There is an annual 1.25% mortality and expense fee, the expense ratio is 0.41% and there are surrender charges of 5% in years one through five, 4% in years six and seven, 3% in years eight and nine, and 2% in year 10. The surrender fee applies once the contract begins (not annually) and disappears in year 11.

IMPORTANT NOTE: CTA does not give tax, legal or investment advice. You should meet with your tax, legal, and/or investment advisor to determine the best fit for your situation.