Saving for retirement is a key part of financial planning for most people. Unless you have a vast inheritance coming your way or you’re OK working until your very last day, you’ll need to start squirreling away money so you can enjoy your golden years.
Using a workplace retirement plan such as a 401(k) is the most common way to prepare for retirement, but there is one aspect of these plans that many savers aren’t aware of – the fees. A 401(k) is a product, after all, and the companies that offer them aren’t doing it out of the goodness of their hearts. There is good news, though. According to a recent survey from investment consulting firm Callan, lowering fees is in the cards for many retirement plan sponsors in 2023.
For help managing your own retirement savings plan, consider working with a financial advisor.
Callan Survey Findings
Fees are top of mind for many plan sponsors – that is, the individual companies offering 401(k) plans to their employees – in 2023. Callan’s survey found that two-thirds of plan sponsors are either somewhat or very likely to conduct a fee study in 2023. This means analyzing the fees their employees pay.
This could lead to savings for plan participants. The survey also found that nearly half of all sponsors cut their fees following their most recent fee review. Furthermore, over 90% of sponsors benchmarked the level of plan fees as part of their fee evaluation process. This means comparing the fees paid by their participants to a number of examples, including industry averages and fees paid by other providers.
Beyond fees, another interesting finding from the survey is that 76% of respondents are using automatic enrollment. This means that all new employees are automatically enrolled in a retirement plan, as opposed to having to opt-in. Behavioral finance studies have shown that this feature is very effective in getting people to save for retirement.
How You Can Cut Back on Fees
Some fees are outside of the control of an individual participant. For example, you don’t have control over which 401(k) recordkeeper your company uses, so you’re stuck with the fees of whatever plan is chosen by the company. There are ways, though, to lower your individual fee tally.
The best way to do this is by picking low-cost investment options like indexed mutual funds or exchange-traded funds (ETFs). These types of funds don’t have a fund manager picking investment choices; rather they track a market index like the S&P 500. Index funds are marketed as having lower fees, and that generally bears out to be true. If you want to have the lowest fees possible for your retirement savings, look to these funds as opposed to pricier actively-managed options.
Bottom Line
Fees are an inescapable part of saving for retirement if you choose to do so using a workplace retirement plan. Plan sponsors, though, seem to be looking to lower fees or at least keep them in line, according to a recent survey from Callan. An individual participant can also keep their fees low by choosing the lowest-cost investment options, like index funds and ETFs.
Retirement Planning Tips
- A financial advisor can help you choose your investment options with an eye on fees. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Use SmartAsset’s 401(k) calculator to help you get a sense of how your 401(k) could grow given what you are saving each month.
Photo credit: ©iStock.com/jygallery, ©iStock.com/AndreyPopov, ©iStock.com/c-George