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Saving for retirement is already quite difficult, but it is even more difficult when all the money you invest fails to be credited to your retirement account.
Hidden fees are, unfortunately, a fact of life. Whether you have been stung by credit card fees, bank charges, airline fees, etc., this is a common boredom. And you can not escape by saving for retirement.
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Everyone pays a fee when he invests in a retirement account, but not everyone knows that they are paying fees. Thirty-seven percent of Americans mistakenly believe that they do not pay 401 (k) fees, according to a TD Ameritrade survey, and 22% do not know whether they are paying fees or not.
Whether you store your money in a 401 (k) account, traditional IRA, Roth IRA or other type of retirement account, a fee will be charged (because the people who manage the accounts have to earn money in a way or of another). Depending on the amount of fees in your account, you may have to pay hundreds of thousands of dollars in fees during your lifetime, which could seriously hamper your retirement savings.
How much does it cost when it comes to fees?
Fees are inevitable, but if you pay more than you need, your savings could be reduced in the long run.
Retirement account fees are insidious because they do not seem too harmful on the surface. The average 401 (k) plan charges fees of about 1% of assets under management, according to the Center for American Progress. So if you have invested $ 10,000, you will pay $ 100 a year.
This does not seem too painful, but that number is growing rapidly as your savings grow. If your retirement fund reaches the $ 1 million mark, it will cost you only $ 10,000 a year. These costs add up year after year and after a few decades of saving for retirement, you will end up spending a lot of money on fees.
In fact, the Center for American Progress found that if you started saving at age 25 with a median salary of about $ 30,000 while paying a 1% annual fee, you would end up paying about $ 138,000 worth of money. money at the age of 67. slightly higher fees of about 1.30%; however, all other factors remaining unchanged, you would pay approximately $ 166,000 in lifetime costs. This 0.30% may seem like it would not make a difference, but over time, it builds up considerably.
The expenses of the retirement accounts are also sneaky because the money you pay does not appear on your statements. the fees are automatically deducted from the fund's assets and all you see is the balance of your account. Without doing the calculations yourself, there is no easy way to know exactly how much you are spending on fees.
What to do if you pay too much
To find out how much you really pay for, ask your plan administrator or visit the plan website for more information. The expense ratio is the most important expense to consider as it covers most of the administration and management costs of your plan. If your plan has an above-average spending ratio of 1%, you may consider switching to another plan.
If you have a 401 (k) that offers matching contributions from the employer, it is best to continue to contribute enough to make the account complete. After all, free money is always a good deal, regardless of the amount of fees. Once you have won the full match, add additional savings to a traditional IRA or Roth IRA with lower fees.
And do not forget that the less you pay, the less personalized advice you will get. Robo-counselors, or investment accounts that use complex algorithms to invest your money without the help of a human financial advisor, often have the lowest fees, but you will not get much personalized advice. If you do not need a lot of resources and you just want a place to let your money grow as quickly as possible, that may be the way to go. But if you prefer to have someone to guide you in your investment options, you may have to pay higher fees for better access to a financial advisor.
You will never be able to completely eliminate fees when planning for retirement, but you can save money by understanding how much you pay and by researching whether you could get a better deal elsewhere. By simply moving your money to a cheaper account, you could save tens of thousands of dollars.
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