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I put together a little Excel spreadsheet I'm calling the 401k "Shaft Detector". It's designed to answer the question, "Are you getting the shaft in your 401k?" You can download it from the Retire Early Home Page at the following link. (It's a 21k zip file that expands to a 50k .xls file. You'll need pkunzip.exe to expand the file.)

The spreadsheet assumes you work for 30 years (the accumulation phase), then retire and spend all the money in 20 years (the distribution phase).

I ran a case for someone making $40,000/yr, assuming a 5% per year salary increase for 30 years, and a 10% contribution to a 401k. There is no company match.

This is compared to putting after tax money in a taxable account and investing it in the Vanguard Tax-Managed Index Fund with a 0.18% expense ratio.

I assume that the ordinary income tax rate is 28% for all 50 years and the capital gains tax rate is 20% for all 50 years. A 10% return (8.5% capital appreciation, 1.5% dividend yield) is assumed.

Surprisingly, with the assumptions above, if you pay more than 1.25% in fees in your 401k account and get no company match, you'd be better off in a taxable account. This assumes you also keep your money in investments with a 1.25% expense ratio during the distribution phase. Of course, the smart thing to do would be to rollover into a low-fee IRA once you retire.

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