In today’s economy, most of the financial responsibility for saving for retirement falls on the shoulders of individuals. This means, we must be aware of how we are saving to ensure that we are saving enough. One tricky part of saving for retirement comes in the form of 401(k) fees. Many of us, are not even aware of the overall amount we are paying in fees and where these fees are going. However, 401(k) fees can be costing you a great deal of money in terms of retirement savings. It is important to understand not only the fees, but how you can either avoid or reduce the impact of these fees. Here are four ways you can lessen the burden of 401(k) fees.
You will likely hear this suggestion time and time again when it comes to retirement savings, but taking full advantage of your employer’s match is nearly always the best bet. Your employer will sometimes match your contribution up to a certain amount per year, which is basically free money you are getting towards your retirement. Maximize this opportunity if it is available to you. This ‘extra’ money can at least help offset the fees you pay.
Know What Fees You are Paying
Knowledge is the first step in any worthwhile process. Instead of just directing your money to a retirement account and forgetting it, learn more about that account. Read your statements and don’t be afraid to ask questions.
Kiplinger’s suggests estimating your direct investment expenses by looking for the expense fund ration for each fund you own. You can usually find these on your 401(k)’s website. Next, find your most recent 401(k) statement and record each expense ratio next to each fund you own. Add up all the funds. The total should come out to 1%-1.25% or less of your total fund. If they are higher you will want to look for other ways to get these fees reduced.
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Look for Other Savings Methods
If the fees you are paying are above 1-1.25% you need to start looking for other avenues of retirement savings. CNN Money spoke with financial planner, Walt Klisiwecz and he suggests investing in a traditional or Roth IRA, which allows you the freedom to buy whatever fund you want. Whether you end up investing in a Roth or traditional IRA will likely depend on your income and financial goals.
Invest in Low Fee Funds
Klisiwecz suggests that once you have maxed out on your IRAs, you should then go back to your 401(k) and invest the extra money you freed up in the lowest fee bearing funds your plan allows. At this point you will just have to accept the fees, but attempt to minimize them as much as possible.
Saving for retirement does not come with a manual, and you will have to figure out a great deal as you go along. Fees are a necessary part of retirement savings, but they should not consume large portions of your savings. Learn what you are paying and how much, and if these fees are too high, change your retirement plan to fit your needs.
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