More than 55 million Americans – about a third of the workforce – have retirement savings in 401(k) plans, yet few are aware of the downsides. When they find out about the excessive fees that eat up their savings, and other drawbacks, they are often shocked. Financial security expert Pamela Yellen, a two-time New York Times best-selling author, discusses:
401(k)s Charge You Excessive Fees
Pamela was recently interviewed by a Colorado radio station on her new book,"Rescue Your Retirement: Five Wealth-Killing Traps of 401(k)s, IRAs and Roth Plans — and How to Avoid Them." The host was shocked and angry by what he learned in the book — especially when he looked into the fees he was paying in his own 401(k) plan.
“For many participants, the plans that started replacing pension plans after 1978 have been less effective than stuffing cash in a mattress,” Pamela says. She explains why the 401(k) has been called a “disaster,” including:
- How excessive fees charged by mutual fund companies and plan administrators are robbing Americans of up to half of their nest eggs.
- Why the “father of the 401(k)” now says he would “blow up the system and restart with something totally different.”
- When “free money” isn’t free. A study by the Center for Retirement Research revealed that for every dollar an employer contributes to an employee’s 401(k) match, they pay 90 cents less in salary to men and 99 cents less to women on average.
“You don’t even get all of your employer match until you’re ‘vested,’ usually after 4 to 6 years on the job,” Pamela says. “You’re really netting pennies, not dollars, in matching funds plus you’ll lose some or all of this pittance if you don’t stick around longer than the average worker.”
According to the Bureau of Labor Statistics, the average time people stay on the job is 4.2 years — for many, not long enough to be vested.