Employees of smaller companies will have $100,000 less in retirement than workers at bigger companies. But it's not for the reason you think…
A study done by BankRate.com found the average worker at a small company who invests in a 401(k) over a lifetime will lose $113,000 of that money. That's not because the wages might be smaller at a smaller employer. That's because the money goes down the drain to massive junk fees and expenses put on by the third party administrator of the small company's 401(k) plan.
Think about that. More than $100,000 less in retirement just because your employer isn't savvy in picking a 401(k) plan administrator!
Fortunately, you're not fated to lose $100,000 just because you work for a small employer
Here's my suggestion. If you are somebodywho would never save otherwise, I want you to save money in your employer's plan -- even with the crummy 401(k) administration.
But on the other hand, if you are a real self-motivated saver, I want you to look at the plan expenses and see if you can do better on your own.
The expenses on the average mutual fund are 1.25% per year. Yet if you're being charged more than six tenths of one percent (.60%), then they're ripping you off.
The funny thing is your employer probably doesn't even know they're getting ripped off by the plan administrator's fees. [By the way, if you are a small business owner looking for an affordable 401(k) plan to offer your employees, take a look at Sharebuilder401k.com.]
So if you are a motivated and dedicated saver who get the job of saving done on your own outside of a 401(k), my favorite starting point for you is the Charles Schwab U.S. Total Stock Mart ETF that charges only 0.04% per year. There are also plenty of options through Vanguard as low as 7 or 8 one hundredths of a percentage point. Just see my investment guide to get started.
If you are disciplined, I want you to set up your own Roth IRA and fund your retirement savings through it. If there is a company match, contribute only enough to the company plan to pick up the match. And then every extra penny you save for retirement goes to the Roth IRA.
- For further reading: Clark's Investment Guide