Fees can erode your savings. Make sure you understand the fees you are paying because it can make a big difference in your nest egg.
Although fees seem small when expressed as a dollar amount or percentage of assets, they can eat into the growth of your retirement nest egg and lessen additional growth through compounding interest. Give serious consideration to fees when choosing investments for your 403(b) or 457 plan because they will have a significant impact on the ultimate balance of your retirement account.
Fees affect your return
Any investment involves some fees; you can’t entirely avoid them. What you can do, though, is to be sure you understand what you’re being charged, and why. This will help you to better gauge whether the value of what you get for the fee justifies the cost.
Plan costs & fees
Typically, a 403(b) or 457 plan has two kinds of expenses: administrative costs and investment management fees.
Investment Management Fees
This is often expressed as an expense ratio, or the amount of the fees as a percentage of your net assets. For example, if you had $100,000 invested, a fee of 0.1% would cost you $100 a year, while a fee of 3.0% would cost you $3,000 a year.
These fees cover the cost of managing and maintaining your retirement account. These fees may cover custodial fees, account management, customer support and other services.
Fees reduce earnings
The following chart shows how various fees reduce the ending balance of a portfolio. It assumes that you invest $200 a month for 30 years and earn an annual average return of 6%.