Money Matters

How Hidden Expenses Can Affect Your Retirement Goals

Having enough money for retirement can be a tricky proposition even under the best circumstances.

But when some of those dollars are being siphoned away by hidden – and perhaps unnecessary – fees, then the path to a secure retirement becomes even more difficult to navigate.

Even small fees can have a major impact over time, which is why people need to be aware of what they are being charged, and whether other options exist that make for a better and smarter investment, says Casey B. Weade, a retirement-planning professional and author of the book “The Purpose-Based Retirement” (

“Probably 99 percent of people have no clue what they are really paying in fees and expenses,” he says. “They are bleeding out their life savings.”

Weade says those hidden fees, which are abundant in the financial industry, are his No. 1 frustration with the profession.

“There are a couple of products that consistently illustrate the problem with hidden fees – mutual funds and variable annuities,” he says. “Many people believe their retirement advisor only makes money when something is bought or sold. But that’s not always the case.

“With mutual funds, for example, some fees are disclosed in the prospectus for the funds, but often there are additional ongoing fees that are not consistently or adequately disclosed.”

Some of those mutual fund fees and costs include:

Stated Expenses

*Loads. Different classes of mutual funds have different types of loads or charges that are similar to commissions in that they compensate the financial professional for selling the fund to you. Some are front-end; you are charged at the time you make your initial investment. That charge usually is about 5 percent. Others are back-end, meaning you are assessed the charge if you sell the mutual fund, usually within a specified timeframe.

*Expense ratios. Other than loads, this is the only cost many retirees and pre-retirees are aware of, Weade says. The expense ratio is used to pay distribution costs, administration fees, management fees and marketing costs. The expense ratio can be 1 percent or more, depending on the mutual fund. According to the Investment Company Institute, the average expense ratio in an equity mutual fund is 1.4 percent per year.

*Advisory fees. In addition to the internal costs of owning a mutual fund, you may be paying a management fee to your advisor, Weade says. This fee can range anywhere form 0.25 percent up to 2.5 percent. Even if you aren’t aware of it, you should be able to determine how much this one is costing you because it is required to be disclosed on investor documents.

Unstated Expenses