It is only normal to think about planning and saving for retirement, so I will provide you with how to use a 401(k) optimizer to save on retirement fees. You can check out our Personal Finance Guest Interview Series, which features great advice from some of the top minds in personal finance, passive income and investing. But while doing so, one important thing that is overlooked or goes unnoticed is the fees involved in the retirement investment process. How many of you know what exactly percentage points based retirement fees?
Only a few people are aware of the hidden fees while planning for the retirement. These high fees and hidden fees can be avoided, only if you pay attention. Even the experienced of people make the mistake of overlooking the interest that they end up paying for the savings.
Most people look at the end result, for example, the return on the investment that they are accumulating, ignoring the interesting part. Only when they look deep into the return amount do they realize what blunder they are committing year after year.
How to Use a 401(k) Optimizer to Save on Retirement Fees
Thus, avoiding further erosion of investment returns paid to advisers through hidden fees or high expense ratios. This is your hard earned money and it should continue to go back into your pocket.
This is why I love services like Personal Capital that help me track my retirement plans and shows the number of expenses that I am incurring on retirement. Here are some other considerations for when you are ready to retire.
I love their retirement planner and projections, but there is more that can be done to optimize your 401(k) that people don’t really realize.
What is a 401(k) optimizer?
A 401(k) optimizer will scan your entire 401(k) retirement account for any above-market fees that you are currently paying and provide recommendations on how you can optimize your 401(k) to ensure you are in a quality position for the future.
My favorite tool to use to optimize my 401(k) and save on retirement fees is Personal Capital.
Analyze and optimize your 401(k) with Personal Capital, a free way to get a checkup on your 401(k) and avoid paying excess fees in your retirement accounts.
The platform offers you a free investment consultation to assist you with difficult investments decisions.
Benefits of Using a 401(k) Optimizer and Fee Calculator
There are plenty of advantages to using a 401(k) optimizer and fee calculator to prepare for retirement and invest efficiently. Here are some of the benefits of using a 401(k) fee calculator:
- You eliminate unnecessary fees immediately and start saving money instantly
- A 401(k) fee tool can show you new ways to invest effectively
- The 401(k) fee calculator will take all your accounts and stack them against each other to ensure you are optimized for retirement
- A 401(k) manager will show you where you should invest your money instead, automatically
A 401(k) optimizer is the next generation of managing your retirement accounts. Save time and money by running your retirement accounts through the optimizer to ensure you are not overpaying for retirement fees.
If not, you are simply giving away money to fund managers. Ensure you are going to live a happy retirement.
Mistakes to Avoid While Optimizing Your 401k
You need to be careful because you can make several mistakes while optimizing your 401k that won’t simply be picked up. Here are some key mistakes to avoid while making a retirement plan.
- Most people treat their retirement account as a savings account and take a loan from there. Borrowing money from the retirement account turns out to be one of the costly mistakes one can think of.
- Many people find it exhausting to take time out and diversify their investment, so they end up putting all their money in one place, but that is not the right thing to do. You should always diversify your investment in order to gain maximum benefit.
- Act quickly rather than delaying the process. Yes, it is a time-consuming affair and all the investment plans, fees, and the returns can be quite overwhelming for some people, but delaying the process only mean that you are losing out on the opportunity to save more. So, it is always better to act fast and make the right decision in investment.
- Keep an eye on the money you are investing, so that you can rebalance your portfolio whenever there is a need to do so. Your investment can start with a certain ratio, but it is not important that few years down the line, the same ratio is still profitable. Therefore, you should act wisely and balance your bond and stock ratio accordingly in order to reap the most out of your investment.
Additionally, understand your key personal financial ratios to position yourself for success. You need to know what you can do to better your personal financial future by analyzing the numbers. What are you doing to make sure you are saving enough for retirement?
These are the best 401(k) fee calculators.
Six Effective Ways I Saved Over $25,000 in Retirement Fees
So, let’s review the six effective ways I saved over $25,000 in retirement fees. This was before I had the pleasure of using Personal Capital’s 401(k) optimizer and fee calculator.
There are plenty of ways to save money in retirement fees, but not all are effective. Here are 6 effective ways to save money on your retirement fees.
1. Don’t go for early withdrawals
A 10% withdrawal penalty is charged if the money is withdrawn from 401 (k) account before one turns 59 1/2. In addition to this penalty, income tax will also come into action on the distribution.
So, if you are in the tax bracket of 25% and you withdraw an amount of $5000 from 401(k) account, then you will end up paying $1750 including the penalties and taxes.
Keeping this in mind, if you manage your account, you won’t have to dish out a huge amount of your saving in the form of fees or penalties or taxes.
2. Making the most out of the retirement program while working
If you are working with a company where they offer you the benefit of some retirement plan, then the best thing to do is to sign up for the program. The best part of these kinds of retirement plans is that the employers also contribute towards your retirement plan.
So, if you contribute a percentage of your salary every month towards the retirement plan, then your employer will also contribute the same percentage towards your retirement plan.
Once you have worked with the company for a reasonable time, you have the absolute right to the amount and you end up getting double the money in your retirement plan. There are plenty of ways to invest in the stock market with limited risk.
3. Low-cost funds are the always answer
While trying to make the most out of your retirement plan it is important that you look for low-cost funds. The expense ratio should not cross 1% because if it does, then you are paying just too much.
There is no dearth of investment plans, so if your workplace is not providing you with any low-cost fund, then you look somewhere else. It will help you grow your balance faster and also reduce the investment cost. Here’s how I saved money instantly in my 401(k).
4. Roll over the account
While shifting from one 401(k) account to a new one or some other retirement plan, you shall never transfer the amount to your name.
The best thing to do in this scenario is to transfer the whole amount in the new account, else be prepared to dish out 20% of your 401(k) amount as income tax due to the 401(k) withdrawal penalty.
A 60 days window is provided to make the necessary transfer else a huge amount will be withheld and in the end, you will be the sufferer. There is no reason you should withdraw from your 401(k) until your retirement age.
You will lose out on your hard earned savings. 401(k) limits are $18,500 for 2018, so try to contribute the maximum amount.
See Related: Best Retirement Quotes (Including Funny, Short and Inspirational)
5. Hunt down better investment options
Generally, when you work for a company they have limited investment options and also the fees are higher than 1%. These kinds of arrangements don’t serve you any purpose, rather they are damaging for your future savings.
Look out for investment options where the fee is less than 1% so that your retirement savings is high. If you couldn’t find one for yourself, then contact the HR department, so that they can help you out with this and introduce profitable investment venture for all.
In addition, we like the use of global dividend growth funds to diversify your retirement portfolio. We listed several global dividend growth funds with expense ratios of less than 1%.
These dividend growth funds can be used in your dividend income portfolio for residual income or retirement.
6. Seek professional help
If these entire investment things seem too exhausting and overwhelming for you, then you can always seek an expert adviser’s help. They will be able to guide you through different kinds of investments where the fees are less, but the return will be high and beneficiary for you.
But, while selecting the advisor you must be very clear about what you want. There are some advisors who suggest investments that will yield them higher benefits, but you won’t benefit from them. Here is how you find a financial planner.
So, while going for an expert, it is important that you look for a fiduciary who can help you out in saving a fortune after retirement without dishing out huge fees. Ask your advisor about hidden fees to avoid paying excess retirement fees and dwarfing your investment returns.
Stay motivated with these financial planning quotes. Retirement is a long road. Continue on your path and you will do very well for yourself.
Conclusion on Using a 401k Optimizer to Save on Retirement Fees
When looking at other retirement options, I always review my favorite brokerage options to ensure I’m getting the best bang for my buck. I never want to overpay for tradings fees. It is just unnecessary return erosion.
Also, make sure to check for hidden fees everywhere you go. Hidden fees can erode your returns. Especially over a long period of time, so do what you can to avoid paying hidden fees from your retirement portfolio. Monitor your fees using the above six effective ways and you too can save over $25,000 throughout your investment period.
Check out our wealth management resources that will help you plan for retirement. By having more fees in retirement you are putting yourself in a worse position for accumulated wealth.
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1 Comment
Useful information on ways to avoid excess 401(k) fees and expenses. I’m invested in a low-cost S&P 500 index mutual fund, a 0.35% blue-chip growth stock mutual fund, and a 0.60% small- and mid-cap growth mutual fund through my 401(k).
For those who have limited (and often expensive) options in their plans, approaching your HR group or Retirement Investments group to advocate for low-cost options is a great piece of advice. I know were I in that boat, I’d certainly reach out to find out how I could have more cost-effective investment options made available to me.