The $400,000 Fee Gap
ZarWealth original data study. Methodology below. We revise annually.
The headline number
A household that saves $1,000/month for 40 years at a 7% gross annual return ends up with $2,552,000 if their funds cost 0.10%/year (a low-cost index target-date fund), or $2,161,000 if their funds cost 0.70%/year (a typical actively managed target-date fund).
The gap: $390,929 — nearly $400,000 — on identical contributions and identical gross returns. The only difference is a 0.6-percentage-point fee. That is roughly 15% of the entire nest egg.
It is not one cherry-picked number
| Monthly saving | Low fee | High fee | Fee gap | Ending (low) | % nest egg |
|---|---|---|---|---|---|
| $500 | 0.10% | 0.70% | $195,000 | $1,276,000 | 15% |
| $500 | 0.10% | 1.00% | $280,000 | $1,276,000 | 22% |
| $650 | 0.10% | 1.00% | $364,000 | $1,659,000 | 22% |
| $1,000 | 0.10% | 0.70% | $391,000 | $2,552,000 | 15% |
Why it is so large
Fees compound against you the same way returns compound for you. A 0.6% annual fee does not cost 0.6% of your money; over 40 years it costs ~15% of your final balance, because every dollar skimmed early never compounds again.
Methodology (reproducible)
Future value of an ordinary annuity, monthly contributions, compounded monthly: FV = C x [((1 + r)^n - 1) / r], r = (gross return - annual fee)/12. Assumptions: 7% gross annual return, 40-year horizon, nominal contributions, all-in expense ratio, taxes and inflation excluded (both scenarios share the same environment). Fee anchors are illustrative round numbers, not quotes for any product. Anyone can reproduce every figure. Find an error? Tell us and we correct it publicly.
Free to cite with attribution to ZarWealth. The ZarWealth Team — we don't show our faces; we show the work.