What do these two things have in common? They’re both subject to erosion – of the natural and man-made varieties. Obviously you have more control over your 401(k) than what your favorite beach destination will look like years down the road.
Personal Finance Writer Sandra Block of USA Today recently highlighted five things that can sabotage your 401(k): loans, rollover decisions, hardship withdrawals, cashing out early, and fees. Some things — like cashing out early and hardship withdrawals — can be the equivalent of a Hurricane Danielle, with years needed to recover. To avoid 401(k) erosion, you need to be aware of all of these factors — especially fees. And unless you love reading tiny print, scouring web sites and doing algebra, you probably don’t know what your plan’s 401(k) fees are — or how those costs compare to similar offerings.
Fees are the least understood part of the erosion equation, but they can become the equivalent of a slow-moving tropical storm in terms of impact to your retirement bottom line. There is some good news: new tools are available to help you do the legwork: If you work for a large employer, CNN Money offers a free tool that shows the impact of the fees in your employer’s plan. If your employer is not in CNN Money’s database, you could use a tool like 401kfee.com just to calculate the impact that a couple of percentage points in fees makes over your lifetime. And greater disclosures about fees are coming, as Carole Fleck notes in Am I Paying Too Much in 401(k) Fees in the AARP Bulletin.
Have you taken steps to shore up and protect your 401(k) from erosion by learning about the fees you’re paying, or the potential impact of taking a loan or early withdrawal? Or have you weathered major storms and begun the rebuilding process? Tell us about it on our Facebook page or in the comments below. You never know when a major storm like unemployment or a health issue may hit, so doing what you can now to protect your hard-earned nest egg makes good sense.
Photo courtesy of Versageek