First, there is the expense ratio — about 1.12 percent of assets for the average large capitalization blend fund. Then there are transaction costs and distribution costs. Active funds also pay a penalty for keeping a share of their assets in low-yielding cash. Altogether, costs add up to 2.27 percent per year, Mr. Bogle estimates.

By contrast, a passive index fund, like Vanguard’s Total Stock Market Index Fund, costs merely 0.06 percent a year in all.

Of course, Mr. Bogle has a horse in the race. He founded the Vanguard Group. He invented the first index fund for the public. His case is powerful, nonetheless.

Assuming an annual market return of 7 percent, he says, a 30-year-old worker who made $30,000 a year and received a 3 percent annual raise could retire at age 70 with $927,000 in the pot by saving 10 percent of her wages every year in a passive index fund. (Such a nest egg, at the standard withdrawal rate of 4 percent, would generate an inflation-adjusted $37,000 a year more or less indefinitely.) If she put it in a typical actively managed fund, she would end up with only $561,000.

via Americans Aren’t Saving Enough for Retirement, but One Change Could Help – NYTimes.com.

For all their flaws, 401(k) plans have a fiduciary responsibility to act in participants’ best interest. Managers of I.R.A.s, by contrast, are not legally bound to put their clients’ interests first. They must offer “suitable” products — a much squishier standard.

“They can’t put your grandma in a heavy tech fund,” Mr. Smetters said. “But they could put her in a more expensive bond fund that pays them a huge commission.”

It should be no surprise which of these Wall Street prefers. In a 2011 report, the Government Accountability Office of Congress said it found advisers who were paid $6,000 to $9,000 if clients rolled over savings from 401(k) plans to I.R.A.s.

I.R.A.s are a huge source of profit for Wall Street. Workers roll some $300 billion worth of 401(k) balances into I.R.A.s when they leave their jobs every year.