When we work with clients approaching retirement, we often hear the same refrain: “I’ll just leave my money in my 401(k) because there are no fees.” However, we need to address a critical misconception that could be costing you thousands of dollars every year—your 401(k) absolutely has fees, even if you can’t see them on your statement.
The Hidden Fee Structure of Your 401(k)
We challenge you to do this right now: pull out your most recent 401(k) statement and look for a line item that shows exactly what you’re paying in fees. Go ahead, we’ll wait. If you’re like the vast majority of people we speak with, you won’t find a clear breakdown of your costs anywhere in that five to twelve-page document.
Just because there’s no fee line on your statement doesn’t mean there are no fees. That’s the trick. The fee structure in a typical 401(k) is multi-layered and deliberately opaque. You’ve got your 401(k) third party administrator—it’s not your employer and it’s not the funds themselves. It’s this third party administrator that communicates with the IRS and handles the organizational requirements. Then you have the people who are actually picking what funds, ETFs, or mutual funds are in your portfolio. Finally, you have the fees that you pay to the mutual funds or the ETFs themselves.
Why This Matters for Your Retirement
We see this scenario constantly in our practice. Someone comes in with a 401(k) sitting with a former employer, and when we ask why they haven’t moved it, they say it’s a “cheap way” to manage their retirement savings. However, this belief couldn’t be further from the truth. In reality, you might be paying some of the highest fees available, especially if you’re invested in target date funds.
Target date funds are particularly problematic because they’re designed to be simple. You look at the menu, see that you might retire in 2030, so you pick the 2030 target date fund. Set it and forget it, right? However, because there’s no specific fee line breaking down what that cost is, there’s a very high likelihood that you’re paying the highest possible level of fund fees in that style of fund.
The Real Cost of Complacency
Additionally, your 401(k) limits you to a restricted menu of investment options. You might have ten to twenty choices, which represents just a fraction—a drop in the bucket—of what’s actually available in the broader market. When you’ve reached the point where you’ve done the majority of your saving, you need maximum flexibility and clarity about where your money is going.
Here’s something we tell our clients all the time: when you’ve done the majority of your saving, whether that’s one million, two million, or four million dollars, you’ve reached the point where losing money will hurt you more than making money will help you. Let us repeat that—losing money can hurt you more than making money can help you.
What we mean by this is simple. If you’ve done the majority of your saving and you roll the dice one year and get a 20% growth in your portfolio that was unexpected, that’s wonderful. However, that 20% more than likely isn’t going to change your lifestyle or your possibilities in retirement. It’s a cherry on top. On the flip side, that 20% loss will definitely impact your lifestyle and your income in retirement.
Building a Durable Portfolio
We talk frequently about the concept of a durable portfolio. A durable portfolio is not one where you’re making changes because someone on TV thinks there’s going to be a 10-15% correction. A durable portfolio is something that can sustain the highs and the lows, and you know how you’re going to react when the market doesn’t do what you want it to do.
We’ll be honest with you—we’re actually not too concerned with getting our clients real big, sexy returns that would make the news. Hopefully, if you’re listening, you’re thinking, “Wait, really? Why would we work with you then?” Here’s what we mean by that: if your portfolio is appropriate for you and your long-term goals, meaning you’re able to ride the ups and downs, you won’t be tempted or feel the pressure when headlines scream about corrections, recessions, or market turmoil.
If your solution for market volatility is to get in and get out, we’re here to tell you that over time, you will not be positioned to get those big, fun returns. On the other hand, if you can be poised and stay invested rather than constantly dancing in and out of the market, guess what you will get? Those big, fun, sexy returns—because you’re already in when you should be in.
The Headline Trap
We need to address something we see far too often. If you hear sensationalized headlines and your gut instinct is that you better make some changes, that’s a major red flag. It tells us that you don’t actually have a plan, and you don’t have a durable portfolio.
What’s the saying? If it bleeds, it leads. Most of the headlines you’re going to hear are designed to be sensationalized. If someone is on TV saying everything’s going to be fine and to keep doing what you’re doing, you’re not going to sit there and listen because you can move on with your day. But if they say there are fifteen things you need to be worried about right now, you’re going to sit there and listen to that whole segment. You’ll be thinking you can’t be the one who doesn’t listen and gets it wrong.
Here’s the problem: if you listen to the headlines, you’re going to get in and out at the wrong times. Studies prove this every single year. The one thing you have to avoid is falling prey to selling low and buying high. Furthermore, even if you pride yourself on knowing how to read the charts and pick the right timing to get out, does your spouse know how to do that? Rarely does anyone get both sides of the equation right.
Defense and Offense in Retirement Planning
Building a durable retirement plan isn’t just about playing defense. Let’s say a 10-15% correction comes and goes, and you didn’t have to dip into your safe money bucket because we planned appropriately. Well, guess what we now have? We have dry powder. Everything just went on sale by 15% in that example. Now we can take some of that safe money and buy on sale. We’re not just playing defense all the time—we’re getting returns and seeking opportunity regardless of what’s going on.
Here’s what we know for certain: markets are going to be volatile. They’re going to be up and down. Is it 5%? Is it 15%? Is it 25%? We don’t know, and the market doesn’t care what your plans are. Also, let’s be realistic about how this actually works. The market falls apart first, then the headlines come, and then people react. Never is it where there’s a headline that warns us all of a coming market drop tomorrow with enough time to act. If you’re waiting for the news to tell you what to do, you’ve already missed it by three days.
The Paralysis of Fear
For the last ten years, we’ve probably seen five to ten people every year who come in worried that the whole financial system is going to collapse. If you’re one of those people who believes this is the big one you’re worried about—the thing that can’t be controlled and will wipe you out—you are the definition of paralyzed. You can’t make any moves because no moves sound good when there’s no way out from that scenario.
We encourage you to deal in the here and now. In the here and now, there are definitely things you can do to protect yourself from market corrections. There are things you can do to give yourself exposure to upside in the market. There are things you can do to reduce your taxes. But all of it requires sitting down and going through a retirement plan that’s going to bring you clarity and give you the result you’re looking for.
The DIY Dilemma
It’s hard to manage retirement planning on your own. If you’re somebody who loves to do it yourself, our experience tells us that your spouse probably doesn’t. We deal with a lot of people who love to handle their own investments, but their spouse doesn’t share that interest or expertise. They realize they can’t do it solo because what if something happens to them?
Here’s something interesting we’ve noticed: every couple that comes in somehow knows which one’s going to die first. It’s usually whoever’s handling the investments. They’ll say, “Here’s the deal—I know I’m going to die first based on my family history. I’m the one who had the heart attack. I can manage this portfolio through a market downturn, but if I die first, I’m worried about my spouse.” It’s their way of saying they want help without directly admitting they need it.
Recognition and Excellence
Best Financial Planner in Woodstock, GA for 2023, 2024, and 2025.
This recognition reflects our commitment to providing comprehensive, client-focused retirement planning to families throughout Metro Atlanta. Our dedication to bringing clarity and building durable retirement strategies for our clients drives everything we do.
Take the Next Step Toward Retirement Clarity
If you’re looking at your 401(k) statement and can’t find where the fees are hiding, or if you’re hearing market headlines that make you lose sleep at night, it’s time to get some clarity. We want to help you understand exactly what you’re paying, what you’re invested in, and whether your current strategy will actually get you to and through retirement successfully.
We invite you to experience our no-cost 3 Meeting Retirement Planning Process. This comprehensive approach will help you understand your complete financial picture, identify potential gaps in your planning, and develop a durable strategy designed for your specific retirement goals. You can reach us at 770-485-1876 or visit our website at https://www.vincentplanning.com to learn more.
Not sure if we’re the right fit for your situation? We completely understand. That’s why we offer a “Can We Help” call—a no-pressure conversation to explore whether our services align with your needs. Book a ‘Can We Help’ Call today and let’s start a conversation about your retirement.
For personalized financial guidance, reach out to Vincent Financial Group today to schedule a consultation.