As you struggle with your investing for retirement have you ever considered how much money you lose through costs?
If you're like most people you haven't given it a thought. You trust the system. Believing that it cares about you and will look after you.
But do you know that the people making the real money are the financial institution advisers and specialists. Made rich by skimming off their small 1 or 2 or 3% percent?
With this seemingly small fee they're growing their nest egg at your expense.
The long term impact is significant. The amount you are losing will shock you!
A simple calculation shows that over a 40 year period the average costs of advisors, asset managers and investment specialists will crush the "real return" on your retirement savings by about 75%.
Understanding that the "real return" is the actual amount that you get after taking away the effect of inflation.
This is the average. So in many cases the real gains may be completely wiped out by the costs. So after saving for 40 years you have gained nothing!
A number of studies have calculated that the average administration costs of a retirement fund are about 3% of the fund's asset value every year.
Over a period of 40 years each 1% in costs reduces your retirement investment return by about 30%.
How much of your retirement investment are you losing through costs.
Be prepared for a shock! The following example shows you how much.
Assume that you save $500 a month for 40 years and earn an average real return of 5% ... you should end up with $743 000. This is made up of $240 000 of your contributions and $503 000 of investment gains.
- With costs of only 1% the $743 000 will be reduced to $581 000 - a loss of $162 000!
- With costs of 3% the investment that should have been worth $743 000 has now been halved to a measly $366 000.
The sad news is that some retirement funds have costs higher than 3%. And in addition many funds have not achieved a real return of 5%.
So in these cases, after 40 years of scrimping and saving, the investors in these funds will receive little or no real investment returns.
Little percentages add up to a lot of money
To create the illusion that these numbers are insignificant the costs are quoted as a 'small' percentage. These percentages based either on your contribution or the total value of your investment.
In this way it is very easy to be fooled into believing they are not significant.
However if this was honestly explained you would understand. Your real return of 5%, a cost of 1% will reduce your investment return by 20%!
You would be fully aware that 60% of your real return would be lost with a 3% cost. And your real return will be zero with 5% costs!
These examples should be a "wake up call" about the impact of costs on your investing for retirement. So as you consider your retirement investment options make sure you fully understand the impact of any "small percentages".
In money terms, these 'little' fees It could turn out, to be greater than the actual amount you receive.
Your quality of life in retirement could go from perfect to poor ... all changed by this measly little 3%!