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According to the recent 10X Investment Retirement Reality Report 2022, a staggering 15% of members in corporate retirement savings funds believe that the company that manages their fund doesn’t charge a fee for the service. Another 41% have no idea how much they are paying in fees.
These numbers are very concerning, especially considering the current socio-economic landscape of the country. Most people find themselves in a position where they must make every rand count due to the rising cost of living. We pay fees for almost everything, whether it’s paying for parking in some shopping centres or when you withdraw money from the ATM. So, it is quite surprising to note that people are not paying attention to their retirement investment fees.
The fact that almost a third of people say they are paying above 2% pa (with 16% indicating they are paying in excess of 4%) shows that many investors do not understand the crippling effect of compounding fees.
Knowing what something costs is key to understanding its value, even more so in the case of a long-term investment. You might have heard of the “power of compound interest”. What is less talked about is the “tyranny of compounding costs”. Over time, paying 2% more in fees can mean 40% less for you when you retire.
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Even though people might feel that understanding their contribution towards fees might be too complicated to comprehend, they need to question their investments and use tools available at their disposal to educate themselves. These tools include contacting your financial advisor or doing research on the internet.
Tough economic times make it harder to save for retirement and easier to see why everyone must. In difficult times, the value of proper planning and making every penny count become obvious. Small adjustments to your spending and to the fees you pay for services can amount to significant differences over time.
