With so many painful fees to pay, what's the worst?
It seems like there's a new extra charge added each day. But the one that drains your wallet most could surprise you.
This post comes from Maryalene LaPonsie at partner site Money Talks News.
It seems as though businesses have specialized teams whose only job is to come up with new and outrageous fees to charge us.
We pay ATM fees to banks so we can access our money at night and on the weekend. After spending an arm and leg for an airline ticket, we fork over even more so the plane will carry our bag, too. If we need to make a last-minute payment, we may even be charged a convenience fee for the privilege of paying over the phone.
Of all the many fees you pay, which one is the worst? Which one has the most potential to take you to financial ruin? To find out, click through the jump and watch the Money Talks News video with finance expert Stacy Johnson. Then, keep reading to learn more about that killer fee and how to minimize how much you'll pay.And the worst offender is …
Of all those bank fees, convenience fees and other random charges we pay, the worst by far are the ones attached to 401k's and other retirement accounts.
While new disclosure rules went into effect in 2012, 401k fees are still poorly understood and often overlooked by workers. What's more, the fees can seem deceptively small even though they have the potential to add up to hundreds of thousands of lost dollars.
Assume that you are an employee with 35 years until retirement and a current 401k account balance of $25,000. If returns on investments in your account over the next 35 years average 7 percent and fees and expenses reduce your average returns by 0.5 percent, your account balance will grow to $227,000 at retirement, even if there are no further contributions to your account. If fees and expenses are 1.5 percent, however, your account balance will grow to only $163,000. The 1 percent difference in fees and expenses would reduce your account balance at retirement by 28 percent.
That adds up to $64,000 less to live on in your golden years, and that's if your 401k has only $25,000 in it. Imagine how much you would stand to lose if you were more diligent about your retirement savings.
Nearly 1 in 4 don't know about 401k fees
It may be news to you that you're paying 401k fees. That's part of the problem.
According to a 2013 survey by LIMRA, a financial industry organization, nearly a quarter of workers say they don't pay any expenses or fees for their plan. However, your 401k certainly isn't free, and don't expect your employer to be picking up the tab for you.
In fact, there can be dozens of fees attached to a 401k although they typically fall into one of three categories:
- Plan administration fees. These are the fees associated with the cost of providing and maintaining your 401k. They may be included in the investment fees or charged separately.
- Investment fees. This is the money you pay to have your money managed in an investment fund. These fees are listed on disclosure statements as percentages and often under the heading "expense ratio."
- Individual service fees. These final fees are the ones attached to specific transactions and services, such as fees for requesting a loan or reallocating your funds.
While these fees can be thousands of dollars each year, you might never know it because you don't pay them directly. Instead, they are pulled out of your 401k automatically.
Without the pain of having to write a check to the investment firm for managing your account, it's easy to miss the fact that fees can be a drain on your retirement savings.
3 ways to lower 401k fees
To stop the bleeding, you first need to assess the damage. Your 401k should provide a fee disclosure statement for your review. Pull it out and take a look at what you're paying.
The Society for Human Resource Management reports the average total expense for small plans was 1.46 percent in 2012, but fees could be as little as 0.38 percent for some plans. Our advice is, if you're paying more than 1 percent, it's time for some damage control.
Try these three ways to limit your fees.
- Invest in index accounts. Actively managed accounts have the highest fees, but Morningstar data finds they often lag behind index funds in terms of performance. Invest your money in mutual funds tied to stock indexes, such as the S&P 500, to reduce your costs and maybe even increase your returns.
- Leave your money alone. Every time you transfer funds, you pay a fee. Pretend your 401k is a rotisserie chicken and "set it and forget it." Well, you don't want to forget it completely, but you shouldn't be switching funds every time the market hiccups either.
- Talk to your employer. If you look through your plan prospectus and aren't impressed with what you see, let your employer know. Ask if they would consider changes that may open up new fund options. Gather a few of your co-workers to approach the human resources department together in order to make a stronger case for your proposal.
Do you know how much your 401k is costing you? If not, go find that disclosure form right now.
More from Money Talks News
I wonder why they don't talk about all the government fees. And all the new fees. I just got a fee for my house, a fire inspection fee. This is new last year. The most expensive fees are government. With the private sector I don't have to use their service. With the government if you don't pay they'll come and take it.
By the way the reason the private sector is trying to charge more is, the government is charging them more. It all comes from the government. When are these writers going to start writing about the real problem. a corrupt government that just keeps taking more and more.
Put all mine in mutual, when the company I was working for downsized, and plan on leaving it until I have to start drawing it. Wife and I planned for our retirement when we first got married, fifty years ago. Everything we have done, since then, has been with the goal of living comfortably, not rich, when we did finally retire. How many younger people even think of retirement nowadays?
Our problem now though, is the government is creating more and more ways of getting everything we saved, one way or another.
Scum-Tactic Fee, grimy fees, f-u fee, fine-print fee, oh-sh*t fee, late fee, talking-to-a-actual person fee, stupid fees, ect
Life itself is a fee the day you are born...
the worst??? obamacare. they took away our rights and are forcing us to buy something we may not want just to live here in the usa.. if not we get fined forever or untl we comply with their intrusion into our lives
Oh well people really just need to understand that if they are not diligent- EVERYONE THEY DO BUSINESS WITH is pick pocketing them. If they can find a way to get your money, they will!
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