If you don't give much consideration to your 401k beyond picking the funds and watching the balance you're not alone. Most Americans surveyed by AARP aren't aware they are paying fees for their retirement funds at all.
According to Robert Hiltonsmith of Demos it's time to start looking at the fine print on your 401k plan. "On average people are going to lose about 30% of their retirement nest egg to fees," he explains in the attached video. By Demos' calculation that adds up to an average of $155,000 for median income two-earner families.
Now that he's got your attention, Hiltonsmith has four tips for minimizing those fees in order to maximize the benefits of your 401k retirement plan.
1) Utilize Your Employer Match
Most companies make matching contributions to 401k, at least up to a certain level. It's imperative that workers make sure they're getting largest possible participation from their employer. Over the long haul the benefit of maximizing company matching programs will more than offset the impact of hidden fees.
2) Choose Low Fee Funds
When choosing from the various fund options forget going with the hottest hand or best trailing returns. "Over the long horizon, over 30 years, you're going to get the highest returns just by picking the lowest fee plan," says Hiltonsmith.
Your fund choices will have the expense ratios outlined, or at least summarized. Pick the fund with the smallest price tag, even if the option sounds less sexy than some of the alternatives.
3) Consider an IRA
Too many people think a 401k is all they need for retirement. Not so fast. It may seem like wearing both belts and suspenders but Hiltonsmith says savvy investors have both an IRA and 401k.
Not only is too much savings never enough, a low-fee IRA can give investors a place to rollover their 401k's into lower fees as the option becomes available over time.
4) Talk to Your Employer About Plan Options
Don't just blindly plug your 401k contributions into the plan. Talk to your company's investment adviser to make sure you're optimizing the amount of money you'll eventually be able to take out of the plan.
This service is usually free and more than worth the time.
Finally Hiltonsmith suggests using a site like Brightscope.com to see if your retirement plan stacks up against those offered elsewhere. Some fees are unavoidable but it's imperative to know how your deal stacks up relative to others.
Don't wait until retirement before you realize how big a bite those seemingly small fees can take out of your nest egg!
