We all know that participating in a company-sponsored 401(k) can be instrumental in saving for retirement. Not only that, but we're encouraged to max out our contributions year after year to take advantage of compounding and grow our nest eggs in time for retirement. But while saving as much as possible in your 401(k) is certainly a responsible move in theory, your efforts could wind up being seriously hindered if you make the same mistake more than 90% of Americans make: failing to pay attention to fees.
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According to a NerdWallet study, roughly 92% of Americans have no idea what they're paying in 401(k) fees. Many, in fact, underestimate their fees and wind up losing thousands of dollars in potential retirement income as a result. But while certain 401(k) fees are unavoidable, you do have the power to limit the amount you fork over each year.
How much money are you losing?
The average 401(k) plan's fees equal roughly 1% of assets under management. Now 1% may not seem like a lot, but you have to remember that you're not just forking over 1% (or more) of however much you're contributing; you're also giving up that same percentage of your assets as they grow. In fact, the Center for American Progress estimates that the typical American worker who begins earning a median salary at age 25 is expected to lose a total of $138,336 in lifetime 401(k) fees.
Higher earners have it even worse. Those who begin earning $75,000 at age 25 will pay an estimated $340,147 in lifetime fees.
Let's stop and think about those numbers for a minute, and what they might mean as far as retirement goes. Forgoing $138,336 in income means having $576 less to spend per month over the course of a 20-year retirement. That's a major lifestyle difference, and one that should motivate you to take a closer look at your 401(k) going forward. Furthermore, many retirees encounter high healthcare costs, with the average healthy 65-year-old couple currently expected to spend $377,000 on medical care over the course of retirement. That $138,336 (or, worse yet, $340,147) you're losing to fees could make a serious dent in your healthcare expenses and take one source of financial stress off your plate.
RELATED: The best cities to expand your retirement nest egg:
Best cities for stretching your retirement nest egg
Best cities for stretching your retirement nest egg
25. Orlando, Fla.
Annual healthcare services: $6,126.37
Annual taxes: $3,651.94
Annual utilities: $3,886.59
Annual housing: $8,780.50
Overall cost of living: $46,696.15
Located in one of the best states to retire in the U.S., Orlando offers a potential benefit for retirees: Your kids and grandchildren might visit you more often so they can go to Walt Disney World, Universal Studios Florida and SeaWorld Orlando. When your kids are looking to knock out two birds with one stone — take their children on vacation and visit you at the same time — Orlando could be the perfect lure.
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24. Charlotte, N.C.
Annual healthcare services: $6,031.32
Annual taxes: $3,595.27
Annual utilities: $3,826.29
Annual housing: $8,644.26
Overall cost of living: $45,971.63
You can make your retirement savings last in Charlotte, and you could also earn some money back on your home’s value if you decide to move again. Zillow's data shows home values have been on an upward trend over the last couple of years and predicts they will rise about 4 percent in the coming year.
If you want to move to Minnesota, consider St. Paul over other popular cities — such as Minneapolis. Not only is St. Paul less expensive than Minneapolis, according to Sperling's Best Places, but the crime rate is also lower. St. Paul also shines in terms of healthcare, having 279 physicians per 100,000 population compared to the U.S. average of 210.
22. Louisville, Ky.
Annual healthcare services: $5,954.81
Annual taxes: $3,549.67
Annual utilities: $3,777.75
Annual housing: $8,534.61
Overall cost of living: $45,388.48
Cost of living in Louisville is low compared to the U.S. average, especially when it comes to housing, according to Sperling's. And, there are 335 physicians per 100,000 population.
For retirees trying to live life on a budget, cost of living in Indianapolis is lower than the national average. To save on housing, neighborhoods outside of the I-465 loop tend to offer a balanced combination of low-cost living and lower crime rates, reports Movoto.
Annual healthcare services: $5,942.64
Annual taxes: $3,542.41
Annual utilities: $3,770.03
Annual housing: $8,517.17
Overall cost of living: $45,295.70
The population of seniors has grown considerably — 20.3 percent — in Atlanta in recent years, reports Forbes. And, it's one of the best cities in the country for a healthy and affordable retirement, offering a satisfying senior social life, access to healthcare and more, according to Sperling’s.
Annual healthcare services: $5,922.93
Annual taxes: $3,530.66
Annual utilities: $3,757.53
Annual housing: $8,488.92
Overall cost of living: $45,145.50
Houston is a booming metropolis and a good choice for making your retirement savings last. In fact, it's one of the 50 cheapest places to retire. Health costs are cheaper in Houston than the U.S. overall, according to Sperling's. The city also provides easy access to top medical facilities, including the Texas Medical Center — the world’s largest medical complex.
18. Tampa, Fla.
Annual healthcare services: $5,882.36
Annual taxes: $3,506.48
Annual utilities: $3,731.79
Annual housing: $8,430.77
Overall cost of living: $44,836.25
Tampa boasts affordable rent and cost of living expenses, including groceries, according to Numbeo data. Many suburbs around Tampa have great retiree-friendly amenities such as golf courses, libraries, volunteer activities and more, reports Movoto. And with home values on an upward trend, it could be one of the best cities to own investment property.
17. Memphis, Tenn.
Annual healthcare services: $5,838.89
Annual taxes: $3,480.57
Annual utilities: $3,704.21
Annual housing: $8,368.47
Overall cost of living: $44,504.92
Memphis is affordable, making it a great place to stretch your retirement savings. The cost of living is more than 25 percent lower than the nation's average, according to Sperling's. On a broader level, retirees will appreciate Tennessee’s total tax burden — it's one of the best states for taxes.
16. Newark, N.J.
Annual healthcare services: $5,835.41
Annual taxes: $3,478.49
Annual utilities: $3,702
Annual housing: $8,363.49
Overall cost of living: $44,478.41
Newark’s housing market could help you grow your nest egg — if you're looking to make a good investment in real estate. Home values rose by nearly 20 percent over the last year, and Zillow forecasts they will continue to rise within the next year.
15. Columbus, Ohio
Annual healthcare services: $5,820.34
Annual taxes: $3,469.51
Annual utilities: $3,692.44
Annual housing: $8,341.89
Overall cost of living: $44,363.55
Fortunately for retirees, Columbus' cost of living is lower than the U.S. average. And a little further outside the city, retirees can find affordable suburbs with high proportions of residents age 65 and up, such as Lithopolis and Canal Winchester, reports Movoto.
14. Nashville, Tenn.
Annual healthcare services: $5,808.17
Annual taxes: $3,462.26
Annual utilities: $3,684.72
Annual housing: $8,324.44
Overall cost of living: $44,270.77
If you're thinking about retiring near Nashville, consider Ridgetop, Hendersonville or Oak Hill — all three suburbs ranked among Niche's top 20 places to retire in Tennessee.
13. Bakersfield, Calif.
Annual healthcare services: $5,796
Annual taxes: $3,455
Annual utilities: $3,677
Annual housing: $8,307
Overall cost of living: $44,178.00
If you want to escape the hustle and bustle of big cities like San Francisco and Los Angeles, Bakersfield might offer refuge. Not only will your $100,000 go far in the first couple years of retirement, but another GOBankingRates.com study found it's the No. 2 city where your paycheck will stretch the furthest.
Like other cities on this list, Phoenix is experiencing a marked increase in the population of seniors, reports Forbes. Other nearby areas you might want to consider for more senior-friendly amenities — such as restaurants, retirement homes and recreation centers — include Litchfield Park, Sun City and Florence city, reports Movoto.
11. Austin, Texas
Annual healthcare services: $5,752.53
Annual taxes: $3,429.09
Annual utilities: $3,649.42
Annual housing: $8,244.70
Overall cost of living: $43,846.67
Austin saw a substantial growth in its population of senior citizens from 2010 to 2014, reports Forbes. With minimal unemployment and major job growth projected for the future, the city offers many opportunities for retirees who might want to re-enter the workforce.
Although Dallas is one of the top cities experiencing skyrocketing home prices, it's still an affordable place for retirees looking to stretch their retirement savings. The cost of living is still lower than the U.S. average, and Sperling's estimates future job growth over the next 10 years will be more than 42 percent.
9. Sioux Falls, S.D.
Annual healthcare services: $5,710.80
Annual taxes: $3,404.21
Annual utilities: $3,622.95
Annual housing: $8,184.89
Overall cost of living: $43,528.58
Your nest egg can go further in Sioux Falls. Plus, the city offers work opportunities for retirees — more than a third of people age 60 and older are employed in the city, reported U.S. News.
8. Tulsa, Okla.
Annual healthcare services: $5,662.69
Annual taxes: $3,375.54
Annual utilities: $3,592.43
Annual housing: $8,115.94
Overall cost of living: $43,161.91
The cost of living in Tulsa is about lower than the national average, according to Sperling's. And homes are pretty affordable, too. The median home listing price is $159,900, according to Zillow.
7. Madison, Wis.
Annual healthcare services: $5,660.95
Annual taxes: $3,374.50
Annual utilities: $3,591.33
Annual housing: $8,113.45
Overall cost of living: $43,148.65
In 2014, the Milken Institute ranked Madison as the No. 1 best large metro in its Best Cities for Successful Aging report, largely thanks to the city's high-quality healthcare and healthy environment.
6. Kansas City, Mo.
Annual healthcare services: $5,653.42
Annual taxes: $3,370.01
Annual utilities: $3,586.55
Annual housing: $8,102.65
Overall cost of living: $43,091.22
Low living expenses, notably on groceries, help make Kansas City one of the most affordable places to retire. Plus, buying a home in Kansas City is affordable — the median home price is only $165,000, according to Zillow.
5. Rochester, N.Y.
Annual healthcare services: $5,601.25
Annual taxes: $3,338.91
Annual utilities: $3,553.45
Annual housing: $8,027.88
Overall cost of living: $42,693.62
Saving on retirement living expenses in Rochester shouldn't be that big of a challenge. After all, the city’s cost of living is almost 18 percent cheaper than the country’s average, according to Sperling's.
4. Salt Lake City
Annual healthcare services: $5,593.72
Annual taxes: $3,334.42
Annual utilities: $3,548.67
Annual housing: $8,017.09
Overall cost of living: $42,636.19
Your retirement savings should go far in Salt Lake City. But if you prefer living in suburbs, consider these top picks from Movoto: Bountiful, which has beautiful retirement housing options, and Midvale, which might attract active retirees.
3. Albuquerque, N.M.
Annual healthcare services: $5,477.22
Annual taxes: $3,264.98
Annual utilities: $3,474.77
Annual housing: $7,850.12
Overall cost of living: $41,748.21
Albuquerque is also one of the topcities where your paycheck and retirement savings go far. And when it comes to healthcare, retirees benefit from the fact the city has 233 physicians per 100,000 population, which is higher than the U.S. average of 210.
2. Tucson, Ariz.
Annual healthcare services: $5,445.92
Annual taxes: $3,246.32
Annual utilities: $3,454.91
Annual housing: $7,805.26
Overall cost of living: $41,509.65
Nearly 18 percent of the population in Tucson are senior citizens, reports Forbes. Besides being an excellent city to stretch your retirement savings, Tucson also offers one of the cheapest rents on apartments in the U.S.
1. Oklahoma City, Okla.
Annual healthcare services: $5,425.64
Annual taxes: $3,234.23
Annual utilities: $3,442.04
Annual housing: $7,776.18
Overall cost of living: $41,355.03
Oklahoma City is one of the best cities where your $100,000 retirement savings will go far in your first couple of years in retirement. And according to another GOBankingRates.com study, you only need to make about $44,180 to live comfortably.
Methodology: Cities were ranked based on their cost of living index relative to the average annual expenditures for retirees 65 and older. In order to find the average annual expenditures for retirees 65 and older, GOBankingRates.com used data from the BLS Consumer Expenditure Survey. Cost of living indices were taken from Numbeo on Nov. 30, 2016.
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Look for lower-cost investments
All 401(k)s charge management and administrative fees, which are designed to cover the costs of maintaining the plan. (Those glossy booklets outlining your plan's key features? Your management and administrative fees are paying for those.) But while you can't avoid those basic fees, you can take steps to ease the burden elsewhere.
For one thing, you can review your plan's investment options and choose funds with the lowest expense ratios. This typically means opting for index funds, which are passively managed, as opposed to actively managed mutual funds. Because index funds simply seek to match the performance of existing indexes, their fees tend to be far lower than those charged by active management funds. And if you're worried that putting your money into index funds will zap your returns, think again. A 2015 Morningstar study found that between 2004 and 2014, index funds outperformed actively managed funds pretty much across the board.
Another option to consider is moving some of your assets out of your 401(k) altogether and rolling them into an IRA. IRAs typically offer a wider range of investment choices, so if your options for low-cost investments are limited within your employer's plan, an IRA might actually save you money by minimizing the amount you lose to fees.
Remember, your plan provider, by law, is required to disclose the fees associated with maintaining your 401(k), so consult your summary plan description and annual report to figure out exactly how much money you're dishing out. Just as importantly, always review your individual investments and look for funds that offer the best returns at the lowest cost. The money you contribute to your 401(k) is money you work hard to earn, so don't make the mistake of sitting back and throwing it away.