calculating impact of fees on 403b

[bright eyed]

Ok,
I'm checking to see if I am running the calculations correctly...I'm working with my finance person to make the case for lower fee options in our 403b.

As I said before, our wrap fee is 1.2 on top of the individual fund fees which are .5 and up - most of them over .8

So I took my current balance of $40k, calculated what i would make at 10% interest, plus annual contribution (starting at 13k this year and increased annual by 2k per year) and in 20 years that made $1,552, 886

Then, i calculated what i would make, minus the fees - i used a 2% calculation since most of the funds are around .8 fee.

For the fee scenaraio - I took my balance, added 10% interest, added my annual contribution, calculated the fee and subtracted the fee...each year.

In 20 years, the total balance would be $1,174,847 a difference of $378,040.

Was my calculation correct?

 

[bright eyed]

attaching spreadsheet here...

 

[ats5g]

Quick question:

You start right now [Jan 2007] with $40,000, and add $13,000 in 2007, $15,000 in 2008, and so on. And every year you earn 10% [or 8%] Is this correct?

Are you contributing every month, or at the beginning of the year, or at the end of the year?

thanks,
- Alec

 

[cute fuzzy bunny]

Contributions might be getting made at each pay period...

 

[bright eyed]

each pay period - 26 per year

right now it is $350 per paycheck, plus 4% match (not sure when those payments are made)

and usually some portion of bonuses that come through (last year that was extra $1000 and $3000 that went in)

 

[ats5g]

bright eyed,

I'm not quite sure how your calculating your #'s, so I'm linking to two spreadsheets that should help you.

The first is one I just created: brighteyed_401K.xls [Just change the #'s in blue].

The second is one from Tim Younkin, who used to run a website dedicated to exposing high fee retirement plans: TimYounkin.xls

I think people can still download it at Tim's archived website.

Good hunting,
Alec

 

[bright eyed]

Thanks! much simpler

geez - my acct is actually now at $47k, and i put for 25 years and the difference jumps from 300k to 700k!

 

[Helen]

bright eyed, I think the break even point of investing in a tax deferred vs. an after tax account with Vanguard using index funds is a 1.5% expense ratio. I ran these numbers too when I was looking at my parnter's Valic 403B plan. I was really pissed off at what they were being charged. My partner's company switched to ING and brought the expenses down enough to make it worth while to invest.

As soon as she retires we will move the money out of ING and into Vanguard.

 

[bright eyed]

thanks helen,

that's interesting, our 403b is with ING but perhaps the size of the portfolio is why our fees are high...they said they would go down as our acct grows - it is under $1 mill right now.

they have 1.2 wrap fee on top of each fund's fees.

i just switched all my investments today and i'm a little nervous because it was so much money (for me)...

i split them among the ing index small and med cap funds, fidelity equity income, and fidelity contra funds which have some of the lowest fees avail in our acct...it's the biggest drastic change i've made in my acct yet so i guess that's why i felt so nervous...

 

[cute fuzzy bunny]

By using the cheapest of the cheap index funds in my wifes 403b and having a ridiculously low tax rate, we're about breaking even vs taking the income, the slight increase in taxes, and investing at vanguard.

I went with the 403b until now because I hate income taxes. I decided I hate being porked a little every month by an insurance company so we're gonna drop the 403b and let the government pork me a little once a year. I'm kinda used to that. Besides, it cuts down on my partners and lets me feel a little more monogamous.