401k Fees Really Do Add Up To Big Bucks

Now that I have my first attending job outside of residency, its time to set up my first 401k. I opted not to create one during residency which I discussed in my post about my retirement mistake during training. No need to dwell on the past, I’ve already learned from it and moved on. Looking forward, I plan to take full advantage of tax deferred accounts which means I will max them all out this year.

Money, retirement


Establishing My 401k


During my orientation before I started work I was greeted by a financial adviser who handles the groups 401k plan. He tells me that most doctors in his experience tend to enter into the retirement plan that their group actively manages. He quickly goes over some of his favorite funds and then tells me that at least once a year he throws a party for all the doctors in the group. I hate to judge people, but by the sales pitch I walked away feeling a little uneasy. I knew right away who is paying for those yearly parties (the doctors in the group). Seems like a large conflict of interest to be recommending funds that you make the most money off of. I politely declined and told them that I would go home and read things over.


Fine Print

When I get home I read through a booklet that his group provided that included all the funds and fees. Turns out that his favorite funds have an average ER of about 1% and he charges another 0.5% per year to actively manage your funds, if you so choose. All in, it looks like if someone elected this type of plan they would end up paying about 1.5% per year to have someone else manage your retirement account! On the back of one of the pages in the handout in small print is a form for those who it states “… want to be in control, I will keep my investments in my hands.” This area you can opt out of the management fee and choose which fund you wish to invest in. This also seems a little unfair that the booklet has a total of about 70 pages and at least 10 of them are about actively managed funds. Turning to the page that describes the yearly costs of the funds, I can easily see that the ER’s range from a high of 1.8% to a low of 0.05%. Quite the difference!


How Much Will An Actively Managed Fund Cost Me


Lets say I ended up choosing this adviser and his average ER funds. I started to wonder how much this would cost me over time, assuming I could invest in a 3 fund portfolio with an average ER of 0.25% (actually the funds available to me have a lower average ER but lets just make the math simple). Since I am currently 30, lets say I plan to retire at 67 to get my full benefits. Using my calculator to determine compounding interest, it turns out that I will end up paying an additional $196,304.79 in fees (Assuming I invest 18,000 per year with difference in percent of 1.25). That’s definitely nothing to laugh at and assuming I withdrawal lets say 70k a year in retirement, that adds up to almost 3 extra years worth of retirement spending money available.

Paying someone to manage my money is as crazy as someone other than me making BBQ in my pit


What I Decided To Go With


The funds that I ended up picking was a modified 3 fund or lazy portfolio. Since I still consider myself young with a long time till payout, I am opting to only have a maximum of 10% bonds for the next 2 years. The other 90% will be split between two vanguard funds. One, a fund that mimics the S&P500 and another that has international stocks. With each year that passes I plan to change the ratio as I continue to get older and closer to retirement to favor more stable funds such as bonds.  The other priority at this time besides investment is paying off my student loans and saving for a house. Between all 3 of these and living expenses, I plan to continue living as frugally as possible for the next several years to come. In my mind I’m acting like I continued on with my education and will try to live like a resident or fellow as long as I or my better half can stand it.


Don’t fall for the salesman pitch. You worked hard for your money and be sure you are putting it in a location that will serve you well, not someone else’s pocketbook. 

6 thoughts on “401k Fees Really Do Add Up To Big Bucks

  • August 26, 2016 at 8:45 AM

    Great plan. Live frugally. Pay down debt ASAP! Minimize investment expenses. Use S&P 500, total market and international index funds. Bonds are not really adding anything at this point. – Take it from a 61-year old physician that did NOT follow this plan and is still in debt and trapped working.

    • August 26, 2016 at 9:36 AM


      I plan to do just that and save as much as I can. As I get closer to retirement age, then I’ll definitely increase my bond holdings but that is years away. There are a lot of docs that I have been talking to that still have a lot of debt despite working decades longer than I have. Doesn’t make it right but its the current reality.

  • August 28, 2016 at 7:55 AM

    Sounds like a good plan to me. I’m also following the three-fund portfolio, investing in only VTSAX, VTIAX and VBMFX. Have you written out an Investment Policy Statement as recommended by the Bogleheads?

    • August 28, 2016 at 12:03 PM

      Nice plan. I have not made a formal Investing Policy Statement yet but I have sat down with my s/o to make a general informal plan (written out on a notepad) of what we would both like to happen in the future. I’ll most likely make a formal plan in the coming months.

  • September 1, 2016 at 5:14 PM

    You’re on the right track, Investing Doc! Expenses can decimate a portfolio over time. 1.5% doesn’t sound like much, but the difference between a 4.5% return and a 6% return over many, many years can be millions.

    Best of luck!
    -Physician on FIRE

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