I don’t know about you, but I can’t wait to open up my April IRA and 401k statements.
After a nifty monthly run-up that included record-breaking closes for the Dow Jones Industrial Average and S&P 500 and the Nasdaq‘s highest mark in 12 years, I anticipate a happy report.
Still, one thing I never like looking at — boom market or not — is the expense line. You know, those transaction fees for any monthly activity, or those management fees charged just because I have an actual balance in the account.
But I look anyway, because that’s part of the job in retirement planning.
The figures vary — one CNN Money report says expenses can cost investors as much as $100,000 in retirement savings over a 40-year career; economist Robert Hiltonsmith says expenses can cost a typical two-income family about $155,000 during their lifetime — but the point is clear: Fees add up.
It’s possible your own plan might have low costs. Indeed, participants in the Federal Retirement Thrift Savings Plan (available to federal employees) charges a meager 0.03% in fees. But for most, you’re facing a much more substantial average of 1.5%.
So it’s important to at least understand what you’re paying for — because in some cases, you might be able to control those costs. Here are some of those expenses you should look for while counting your gains from April:
Plan Administration Fees
These include record keeping costs, legal fees, trustee services and perhaps even investment advice and online access to your accounts. Plan fees are pretty much the expense catch-all.
The difficulty in tracking these fees is they are many times rolled into costs charged to either the entire assets of the plan or to your employer. In the former case, the costs are generally divvied out to individual accounts on a proportional basis or as a flat fee. The general rule of thumb on cost is the more complex the plan, the higher the fees.
The bad news is there’s nothing much you can do to control these expenses. You might think an “educational seminar” taken by a plan administrator is a waste of time, but if they go, you’ll pay for it somehow.
Investment management fees are charges for the ongoing management of the assets in the plan and accounts, and generally are stated as a percentage cost of the dollar value in the account. These fees usually are deducted directly from your investment returns.
Actively managed funds (generally those seeking higher-than-market returns) require more in the way of research and trading activity, and you’ll pay for those costs. Passive funds that look to mimic the movement of a particular index like the S&P 500 or Dow Jones Industrial Average require minimal trading activity, and should carry lower fees and expenses.
Because these fees come down to investment vehicles, you have a great deal of control — namely, just opt for lower-cost mutual funds when it makes sense (i.e., if a fund is cheaper while still providing the same or similar exposure that you wanted from the more expensive option).
Individual Service Fees
These are fees for optional services within a plan that can include loans from the plan, the ability to access investment professionals, and additional research tools including investment research.
The great news here: These fees are easy to find on statements, and because these fees are generally a la carte — you pay for each bell and whistle — you have almost total control over these expenses.
It’s easy to dismiss a fraction of a percent here and there, but you shouldn’t — those fractions turn into substantial numbers once you give them about 40 years or so to ferment. So when it comes to expenses, be informed, and be proactive wherever you can.
Marc Bastow is an Assistant Editor at InvestorPlace.com.