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Retirement Account Fees

Retirement Account Focus, Part V

The first thought I have when I hear 401(k) is that it's a great tool for retirement savings. The second isn't so positive, but it's a fact of investing and something we must pay attention to if we want to make the most of our savings. 401(k) accounts can be ridden with hidden fees that could eat up your retirement savings. I know it sounds extreme, but consider this: A 2006 study by Congress found that increasing fees by 1 percent reduces your 401(k) returns by about 17 percent.

In their example, if you invest $20,000 in a 401(k) that charges fees of 1.5 percent, over 20 years you end up with $58,000. But if the fees were .5 percent you would end up with $70,500. And if you have a 35 year time frame you should retire with $220,000, but fees would reduce that number to $163,000.
How is this possible? To find out just

Fees compound over the years, along with the growth of your investment. And while fees are an unavoidable part of investing, avoid paying more than you have to by doing your research. Don't choose mutual funds just because they have a familiar name or a hot track record. While some fees are out of your control, like administrative fees, you have some control over where your money is going and should try and cut investment costs as much as possible.

Aside from investment expenses and administrative fees, there can be hidden fees that we have no idea even exist. The good news is that there are reform proposals making their way around Washington, so hopefully our retirement savings will be better from hidden fees in the future.


Join The Conversation
bellaressa bellaressa 9 years
I read an article yesterday in the paper, which discussed how people are not evening saving for retirement because they are too busy paying off debt especially students and younger people. Scary thought.
DreaAST DreaAST 9 years
They just don't allow people to get ahead and make the most money possible!
CaterpillarGirl CaterpillarGirl 9 years
I didnt do the 401K instead i use Deferred Compensation through nationwide, and the state of florida whom i work for "Participation in the Deferred Compensation Plan allows you to "defer", or delay, receiving a portion of your income until a later date; generally when you retire. The primary purpose is to help you build up a pool of money to supplement your retirement income. This pool can be converted to income when you retire or leave employment and will add to the benefits you are expecting to receive from the Florida Retirement System (FRS) and the Social Security Administration (SSA)
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