Shortly after leaving the HRM’s office, he went straight home and read my book for the first time, and then he made a wise decision; he called my office to schedule a time for us to meet. He and his wife came to my office located on my horse ranch just outside of Harrison, Arkansas. He shared with me all the information and projections given to him by the HRM. After reading his employer’s 401k plan document, I gave the employee and his wife some eye-opening truths concerning qualified plans. When I factored in the “small” 2% management fee buried in the fine print of the 401k plan document, the results were shocking. Over the 31-year period of employment, that fee totaled $803,468. Because of it, the employee’s retirement account was reduced from what could have grown to $4,525,639 down to just $3,161,686. That’s nearly a 30% reduction in retirement wealth—all lost to fees. And it’s worse than that: not only was the money taken out, but the opportunity to grow those dollars was also lost forever. The Hidden Cost of a “Safe” 401(k) At first, our 35-year-old employee thought he was on the right track: Rolling over $100,000 from his old 401(k). Contributing $25,000 per year. Receiving an employer match of 50% up to $3,000. Anticipating a steady 6% rate of return over the 31-year period. It looked promising. On paper, his account could have grown to $4,525,639. But then the fine print caught up with him. The Reality of Fees and Taxes A “small” 2% management fee cost him $803,468, reducing his account by 30.1%—down to $3,161,686. Next came the tax lien: at a constant 25.9% tax bracket, another $850,564 disappeared, plus the lost opportunity on those dollars.
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