Why You're Probably Not Saving as Much as You Think You Are

Saving for retirement is hard enough as it is, but it's even more challenging when not all of the money you're investing actually makes it to your retirement account.

Hidden fees are, unfortunately, a fact of life. Whether you've been stung by credit card fees, banking fees, airline fees, etc., they're a common annoyance. And you can't escape them when saving for retirement either.

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Everybody pays fees when investing money in a retirement account, but not everyone is aware that they're paying fees. Thirty-seven percent of Americans mistakenly believe they don't pay any 401(k) fees, according to a survey from TD Ameritrade, and 22% are unsure whether they're paying fees or not.

Whether you're stashing your money in a 401(k), traditional IRA, Roth IRA, or other type of retirement account, there are going to be fees involved (because the people running the accounts need to make money somehow). Depending on how much your account charges, you could be paying hundreds of thousands of dollars in fees alone over a lifetime -- which could seriously put a damper on your retirement savings.

How much is too much when it comes to fees?

Fees are inescapable, but if you're paying more than necessary, it could eat away at your savings over time.

Retirement account fees are sneaky because they don't look too harmful on the surface. The average 401(k) plan charges fees of around 1% of assets under management, according to the Center for American Progress. So if you have $10,000 invested, you'd be paying $100 in fees per year.

That doesn't sound too painful, but that number escalates quickly as your savings grow. If your retirement fund reaches the $1 million mark, that's $10,000 per year in fees alone. Those costs add up year after year, and after a few decades of saving for retirement, you'll end up spending a lot of money on fees.

In fact, the Center for American Progress found that if you were to start saving at 25 with a median salary of around $30,000 while paying a 1% annual fee, you'd end up paying around $138,000 in fees by age 67. If your retirement account charged slightly higher fees of around 1.30%, though, all other factors remaining the same, you'd pay around $166,000 in lifetime fees. That 0.30% may not seem like it would make a difference, but over time, it does add up significantly.

Retirement account fees are also sneaky because the money you're paying in fees doesn't appear on your statements; the fees are automatically deducted from the fund assets, and all you see is your account balance. Without doing the calculations yourself, there's no easy way to see exactly how much you're spending on fees.

What to do if you're paying too much in fees

To figure out how much you're actually paying in fees, talk to your plan administrator or visit the plan's website to find out more information. The expense ratio is the most important fee to consider, as it covers most administrative and management fees in your plan. If your plan has an expense ratio higher than the 1% average, you may consider switching to a different plan.

If you have a 401(k) that offers employer matching contributions, it's best to still contribute enough to that account to earn the full match. After all, free money is always a good deal, no matter how high the fees are. Once you've earned the full match, contribute any additional savings to a traditional IRA or Roth IRA with lower fees.

Also, keep in mind that the less you pay in fees, the less personalized advice you're likely to get. Robo-advisors, or investment accounts that use complex algorithms to invest your money without the help of a human financial advisor, often have the lowest fees, but you also won't get much personalized advice. If you don't need a lot of hand-holding and just want a place to let your money grow as quickly as possible, that may be the way to go. But if you'd prefer to have someone to walk you through your investment options, you may need to pay a higher fee for greater access to a financial advisor.

You're never going to be able to completely eliminate fees when planning for retirement, but you can save money by understanding how much you're paying and doing some research to figure out if you could be getting a better deal somewhere else. By simply moving your money to a more fee-friendly account, you could end up saving tens of thousands of dollars.

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