Most of us with 401 ( k ) plans watched in horror , as our retirement savings plummeted in the stock market crash of 2008 . That year , the average 401 ( k ) balance dropped by a third , forcing older Americans to delay retirement or cut back on spending . Since then , as the market rebounded , some of our savings have recovered in fits and starts . The crash showed one serious downside to 401 ( k ) s : their complete exposure to the wild swings of the market . But what you may not realize is that even when the stock market is zooming ahead , hidden fees take an unacceptably high share of your investment return . If your immediate response is , `` Oh , I know how much my 401 ( k ) is costing me , '' then you 're one of small numbers of Americans who 's in the know . According to a recent AARP survey , 71 % of people with 401 ( k ) s did n't even know they were paying fees for their retirement accounts . So how much do these fees really cost you ? The answer may shock you . Fees can , on average , reduce your 401 ( k ) balance by up to 30 % , regardless of whether you have $ 1 or $ 1 million in your retirement account . You may wonder -- is 30 % a big deal ? Yes . Let 's look at a hypothetical model of say , an average two-earner household where the combined earnings is between $ 50,000 and $ 70,000 a year over the course of 40 years ( from ages 25 to 65 ) . This couple , unlike most Americans , consistently saves between 5 % to 9 % of their salaries each year and puts that money into a 401 ( k ) account , gradually increasing their yearly contribution over time . And atypically , they never have to withdraw from this account . They invest their 401 ( k ) account equally in a stock mutual fund and a bond mutual fund , each of which charges average market fees . For such a household , 401 ( k ) fees will cost $ 155,000 over a lifetime , which leaves the couple with about $ 350,000 in 401 ( k ) income at retirement . This may sound like a large amount , but if the couple spends this nest egg at the 4 % annual rate recommended by financial advisers , they will have a mere $ 14,000 yearly supplement to their Social Security benefits -- not exactly a king 's ransom . However , $ 350,000 is by far more than what most Americans save . According to the Federal Reserve 's Survey of Consumer Finances , the average household approaching retirement has only $ 100,000 in total retirement savings among all of their accounts . What are these fees , then , that are taking such a big bite out of your retirement account ? There are four kinds : administrative fees , marketing fees ( sometimes called 12-b1 fees ) , investment management fees and trading costs . The first three types of fees are shown , as an aggregate total , in each mutual fund 's expense ratio , and are generally reported in your 401 ( k ) 's `` summary documents '' as a percentage of assets . For example , if you had $ 50,000 invested in a mutual fund that has an expense ratio of 1 % , it means that you pay 1 % , or $ 500 , of the total balance you have invested in the fund in fees . This 1 % is charged each year regardless of the mutual fund 's performance . However , the expense ratio does not include the last type of fee -- trading costs . Despite this omission , rest assured that you are indeed paying this fee as well . Trading costs are pretty complex , but the best way to understand them is to know simply that they rise the more often a mutual fund buys and sells its assets , i.e. , the more it is being `` actively managed . '' If you knew that 30 % of your retirement savings are chipped off , you would probably be outraged . It seems like a steep price to pay for investment management , does n't it ? But the investment industry disagrees , arguing that such costs are justified because mutual fund expenses are regulated by the competition of the free market , and what consumers are paying is simply the cost of doing business . The problem with this argument is that it 's not true . Index funds , for example , have often outperformed actively managed mutual funds while charging a small fraction of the fees . But investing more in index funds will not come close to fixing the broken , expensive 401 ( k ) system . There 's no way around it : the mutual fund system we have ca n't be fixed , and must be replaced . Why ? Because everything about the 401 ( k ) is too individualized : investment management , risk and fees . We need a new type of retirement account that is somewhere between a traditional pension and a 401 ( k ) that combines some of the best features of each . To minimize the excessive risks of the stock market and keep down investment management costs , we can invest the funds from all the individual retirement accounts as a pool , mirroring the way that the assets of a traditional pension fund are invested . Pooling maximizes returns for all participants by allowing managers to invest in a more diversified portfolio and over a longer investment horizon . The government should administer these retirement accounts , making sure that everyone can participate and the pools are as large as possible . However , investment management can and should be bid out to private companies to foster competition . This is one proposal . It 's worth exploring . Far too many Americans are paying unnecessary high fees for precious savings meant for retirement . We ca n't let that continue .
Survey : 70 % of people with 401 ( k ) s do n't know they paid fees for retirement accounts . Robert Hiltonsmith : Fees can , on average , reduce your 401 ( k ) balance by up to 30 % . He says far too many Americans are paying unnecessary high fees , even when market is up . Hiltonsmith : The mutual fund system we have ca n't be fixed and must be replaced .