Evaluating Fees in Your Retirement Accounts
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Saving enough money for retirement usually means that you will have to open new accounts to diversify your portfolio and to let your money accumulate and grow over time. But these retirement accounts don’t take care of themselves without any oversight; someone has to pay for account management. It’s important to periodically evaluate the fees charged for your retirement accounts to make sure you’re getting your money’s worth.
Know your fees
You can’t evaluate your retirement account fees until you know what they are. Unfortunately, that’s easier said than done. Various accounts work in different ways, and even if you have the same type of account as someone else, the fees for the accounts could come from different sources.
This means you will have to do some research. If you have a retirement account set up through work, talk to your HR manager about who pays the fees. A 401(k) account may charge a flat fee. Some, however, have pro rata charges. The accounts that make the most money charge the highest fees, but if you have a really nice compensation package, your employer might pay those fees for you.
If you have independent retirement accounts managed by an accountant or financial advisor, contact his or her office to get more information. A trustworthy professional will happily give you the information that you need and even give you brochures explaining how much you pay in fees.
Decide how satisfied you are
An investment advisor spends time researching and monitoring individual companies as well as markets and other opportunities. If he or she has good tips that help you earn more money in the long run, why shouldn’t that advisor get a little extra, too? If you have looked at the numbers and you feel that you’re getting a good return on your investment and fees, then you might as well keep things the way they are.
On the other hand, some people find out that they are paying much more than they suspected. If you’re paying for an actively managed retirement account, then you may also expect to get a strong return on your investment. If you’re losing money instead, then you might want to consider whether you can justify paying the extra fees.
Keep in mind, though, that even the best researcher can’t make the right decision every time. To some extent, you have to make this decision at a gut level. Do you believe your investment advisor is really working hard to make more money for you? If not, then you have to wonder why you would pay him or her those fees.
Keep an eye on the future
Regardless of how you feel about your current account performance and fees, make sure you get quarterly reports explaining any changes. Fees could rise at any time, and you need to know when that happens so you can decide whether or not to keep using the same service.
Jeff Rose is a certified financial planner and author of the blogs Good Financial Cents and LifeInsurancebyJeff.com. Learn more about his Debt Movement, where he’s inspiring people to pay off $10,000,000 of debt in 90 days.
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