As you struggle investing for retirement have you ever considered how much money you lose through costs?
Do you know that the people making the real money are the financial institution advisers and specialists as they skim off their apparently small percentage? Growing their nest egg at your expense.
The amount you are losing is shocking!
A simple calculation shows that the average costs of advisors, asset managers and investment specialists will, over a 40 year period, crush the "real return" on your retirement savings by about 75%.
The "real return" being the actual amount that you get after taking away the effect of inflation.
This is based on 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%.
Assume that you save $500 a month for 40 years and earn an average real return of 5% ... you will 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 be worth $743 000 has now been halved to a measly $366 000.
Many retirement funds have costs higher than the 3% average. So in these cases there are many, many retirement fund investors who receive little or no real investment returns after 40 years of scrimping and saving.
To create the illusion that these numbers are insignificant the costs are quoted as a little percentage. Based on a percentage of your contribution or based on the total assets.
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 that with a 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 this "little number".
It could turn out, in money terms, to be greater than the actual return you receive.
Your quality of life in retirement could go from perfect to poor ... all changed by this measly little 3%!
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