Posted on 26 June 2012
By Mark Miller
Mutual fund costs will be Topic A this fall around many kitchen tables when workplace retirement savers start receiving the new government-mandated quarterly statements spelling out exactly what they are paying for their 401(k)s. But a kitchen table chat is also in order for retirees.
After all, smart portfolio management is important in retirement, too. Retirees draw down assets to pay living expenses. Fees are still being levied on those accounts – and they can have a much larger impact on retirement lifestyles and portfolio longevity than most people understand.
“There’s a portion of your assets that are being spent to pay the investment managers” says John Ameriks, who heads up investment counseling and research at Vanguard. “And there’s a portion of the assets that are being spent to pay you. When we do drawdown analysis, we just look at aggregate spending. But to the extent the expense ratio is higher, that cuts into what you can spend.”
Ameriks ran the numbers recently to demonstrate the impact that investment costs can have on retirees. The results suggest many retirees could get more mileage from their nest eggs by paring costs – either by jumping ship from a former employer’s high-cost 401(k) plan, or by ditching high-cost actively managed funds.