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Calculating Your Years of RetirementQuinn KNovember 8, 2012
401(k) fee disclosure. If you have never heard of it, raise your hand.
Sorry, forgot this was a blog for a second. You can put your hand down now.
Well if you haven’t, you aren’t alone. But there is a good reason it should move to the top of your list. According to the U.S. Department of Labor, just 1% difference in 401(k) fees and expenses can reduce your account balance by 28% at retirement.
28%?! Depending on your savings, that could be a difference of a couple hundred thousand dollars.
Knowing that, we created the Years of Retirement calculator. We want to help people better understand their 401(k) savings and how fees affect them. The calculator looks at your savings information and factors in your fees from your 401(k) fee disclosure statement. It then displays your results in projected Years of Retirement you’ll have vs. what you want.
Let’s walk through a quick example of how it works.
My Plan: The my plan section includes some basic info about you such as age, years you will be retired and salary. It also asks how much of your current salary you want in retirement and whether or not you want to include social security. I chose to exclude it in my example.
My Savings: My savings asks about your current retirement savings info and how you add to it. In my example I said that I contribute 8% of my salary.
My Fees: This is where we bring in fee disclosure. Grab your 401(k) fee disclosure and drop in the expenses for each section. If you can’t find one of the fees, feel free to select “Use Average” that way you can still get an idea of your savings situation. I used the average for operating expenses and record-keeping fees in my example.
Once everything has been entered I select Calculate Now and see my results displayed to the right.
From my example, it is clear that I have to catch up on my savings. I want to have 25 Years of Retirement but I am only projected to have 9. I want to get more years, so I select the “Get More Years of Retirement” button.
On this screen, I am able to dial up and down my percent of fees and my savings rate to see how they affect my retirement savings goal.
Once you are done you can email your results
There you have it, a quick tour of the Years of Retirement calculator. What happens when I change the fees from 2.55% to 1.55% in my example? I will leave that up to you to find out by trying the calculator yourself. Then run through your own scenario, and invite your friends on Twitter to try out the calculator using hashtag #yearsofretirement.