5 Hidden Fees That Quietly Drain Retirees’ Budgets
Written by
Angela Mae
Edited by
Jenna Klaverweiden
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As many retirees live on a fixed income, one of the worst things that can happen is if they find themselves paying for things without even knowing it. Whether it’s banking fees or investment account fees, even small unknowns can eat into your savings.
Here are some sneaky fees that could be draining your retirement budget.
Retirement Account Fees
According to the Federal Reserve, people ages 65 and up spend an average of $60,087 annually. But you could be spending more in retirement account fees that you don’t even know about.
“The first place to look is in your retirement accounts, whether you have mutual funds, brokerage accounts or if you choose to leave your money as your old 401(k),” said Frank Davis, president of New Era Financial. “These fees in these accounts could range from 0.5% to 1.5% or higher annually.”
But those aren’t the only fees to watch out for. Here are some other lesser-known fees to look out for.
- Rollover fees when you move funds from one account to another
- Account closing fees when you cash out an account (or transfer funds elsewhere)
- Expense ratios on mutual funds and exchange-traded funds (ETFs)
- Marketing or distribution fees (12b-1 fees) for mutual funds or ETFs
- Trading costs that come with frequent buying or selling within a mutual fund
- Custodial fees, service fees and annual fees for your IRA or 401(k) plan (fees vary by plan)
- Robo-advisor fees or assets under management fees
Any of these fees can eat into your returns on investment, which can also affect your overall available retirement funds.
Health Insurance Fees
When you retire, chances are you’ll have to pay something for healthcare. Even if you qualify for Medicare, it might not cover everything you need — like medical devices or long-term care.
If your income exceeds a certain threshold, you may also be hit with higher Medicare premiums.
“The single biggest ‘sneaky’ expense I see that often catches retirees off-guard is the income-related monthly adjustment amount, or IRMAA, for Medicare premiums,” said Brandon Renfro, a fee-only financial planner at Belonging Wealth Management. “It’s not surprising this catches people by surprise because it isn’t something that you deal with before turning 65.”
Depending on your income, your monthly Part B premiums could be anywhere from $259 to $628.90 because of IRMAA, per CMS.gov.
Beyond that, look for potentially high deductibles, copays and maximum out-of-pocket costs in your health insurance policy.
Annuity and Life Insurance Fees
Do you have an annuity or life insurance? Make sure you fully understand the fees so you’re not blindsided when they come up. Here are some annuity-related fees, according to Investor.gov.
- Administrative fees
- Guaranteed minimum income benefit fees
- Initial sales loads
- Transfer fees
- Early withdrawal penalties (up to 10% tax penalty)
- Mortality and expense risk charge (usually 1.25% annually)
These fees should be disclosed in your policy documents, but they might not always be highlighted.
Banking Fees
Roughly 96% of households had a bank account in 2023, per the Federal Deposit Insurance Corporation, but are you aware of the fees your institution is charging you?
“Review your banking accounts and your credit cards because they could have minimum balance fees or annual membership charges,” Davis said.
There may also be overdraft fees, out-of-network ATM fees and monthly maintenance costs.
Housing-Related Fees
If you’re a homeowner, you already know about property taxes and insurance fees. But be sure to account for the fact that these expenses will likely continue to rise over time.
“Also take note, if you’d like to live in a gated community, you should realize that HOA fees usually go up each year and you can get hit with a special assessment if there’s a natural disaster or something large needs to be repaired on the property,” Davis said.
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