Answer: 8%

Questions:

• In your own words, what is a 401(k) plan? 
• Do you think it's important to understand the fees you are paying in an investment account? Why or why not?
• Given that a 401(k) account is the largest investment account for most Americans, why do you think so few understand what they are paying for it? 

Here's the ready-to-go slides for this Question of the Day that you can use in your classroom.

Behind the numbers (Visual Capitalist): 

Here are the expenses highlighted in the infographic:

• Investment expenses
• Communication expenses
• Bookkeeping expenses
• Administrative expenses
• Trustee expenses
• Legal expenses
• Transactional expenses
• Stewardship expenses

Why do fees matter? 

According to a thinktank report from Robert Hiltonsmith, the additional 401(k) fees can cut down the size of your retirement nest egg by an average of 30% for an average worker earning $30,000 per year (and saving 5%), this ends up being $154,794 over his or her lifetime. For someone making $90,000 per year, it works out to a whopping $277,000 in 401(k) fees.

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Want to find out the cost of your 401(k) plan? Ask for a copy of your company's 401(k) summary Annual Report. 

Help your students make wise investment choices in their 401(k) plans with this NGPF Case Study: Compound my Interest in 401(k)s!

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.

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