Why Fees Matter When It Comes to Retirement Savings


Paying fees on investments does not seem like much in the scope of retirement. However, most retirement accounts go underfunded, and millions of families struggle to pay bills each week. Reducing the total cost of retirement investments can help you reach goals faster, without taking more money out of your pocket.

Mutual Fund Fees. Most retirement accounts focus on mutual fund investments, which can have high fees, especially in work plans such as a 401K. Target date funds which automatically adjust investments based on age typically cost the most, and index funds cost the least. Mutual fund fees cover the cost of operating the fund, including paying fund managers to make investment decisions. Choosing a passively managed fund, which mirrors an index, can save thousands of dollars over the course of the investment, often without sacrificing profits.

Financial Advisor Fees. Financial advisors charge by the hour, a flat fee, or a percentage of assets annually. Paying one to three percent of the portfolio balance each year can reduce balances, especially if you do not regularly meet with your advisor. Accounts with active trading might warrant higher fees, but building a portfolio and leaving it to grow, could result in unnecessary fees. In this case, choosing a discount broker and hiring an advisor by the hour to answer specific questions, can save money without impacting account performance.

Account Fees. Independent investment such as IRA accounts often come with annual fees. Most financial institutions charge between $50 and $100 each year to hold an account. These fees can add up to several thousand dollars over the life of the account. Many discount brokers do not charge annual fees.

Paying attention to the cost of your investments can lead to an increased return on investment, without requiring more funds.