The costs of your financial investments will play a very big role in how much you have when you retire. You'll face an array of costs that don't sound bad but when you add everything together the fees will have a long term drag on your financial future

Consider that the safe withdrawal rate in retirement is considered to be about 4%. (This is what you can safely withdraw from your investments and not run out of money before you die). It's typical for clients to pay 2 - 3% of their investments in wrap, commission and fund fees. What does that leave the retiree? Not much.

Let's look at the impact of fees, over time, on your retirement savings. The table below (used by FINRA/NASD to educate investors) assumes you invest $2,000 on January 1st of each year and earn a 10% rate of return before deducting fees.

The Balance after      5 Years    10 Years   20 Years   30 Years    40 Years
Mgmt. Fee @ 0.02%   $13,423   $35,022   $125,696   $360,454   $968,249
Mgmt. Fee @ 0.25%   $13,334   $34,556   $122,204   $344,402   $907,762
Mgmt. Fee @ 0.50%   $13,238   $34,077   $118,528   $327,816   $846,479
Mgmt. Fee @ 1.00%   $13,047   $33,121   $111,529   $297,150   $736,584
Mgmt. Fee @ 2.00%   $12,672   $31,291   $98,846     $244,692   $559,562
Mgmt. Fee @ 3.00%   $12,307   $29,567   $87,730     $202,146   $427,219

Think about the numbers on this table. It is common for people to be paying 2, 3 and even 4% in combined mutual fund and advising costs. If your investments are costing 3.00%, your retirement savings will be some $541,000 lower after 40 years than if you used low-fee investments and did your own investing. How many years of retirement is that? Shouldn't a Financial ADVISOR be showing his clients this chart? But they do not.

Determining Costs

Yoou need to determine how much you're paying for your mutual funds. This is a very important step since the fund companies won't tell you this information so you'll have to look the information up for yourself. The cost of a mutual fund can be found at a website like Morningstar or Yahoo. I've shown an example from Morningstar showing a Riversource mutual fund called the Riversource Disciplined International Equity Fund.

(Mouse over image to make it expand)

First of all, you'll need to find the ticker symbol (1.) and enter this into Morningstar. From there, you need to click on the expenses(2.) tab. Once you click on the tab, you'll see the items of 3, 4, and 5.

Item number 3 shows you the sales load charge. Basically, this is the amount of money the fund company takes out from you when you hand them your money. In the example above, Riversource will take $57.50 from every $1,000 dollars you invest with this fund. This is money that company uses to pay commissions and to increase profits.

Item number 4 shows you what you have to pay in the way of management fees and 12b-1 fees. These fees are typically taken out at the end of the year and these fees are on top of the sales load charge shown in item 1. The management fees are the costs to run the mutual fund and the 12b-1 fees are fees used to market the fund. 12b-1 fees have drawn critisim from the regulatory agencies due to the belief that the 12b-1 fee is nothing more than an additional sales load.