For many people, being retired is almost synonymous with being frugal. With little control over your monthly income, it’s natural that your attention might be more focused on controlling expenses.
In fact, 52% of American seniors on Social Security said they were cutting back on discretionary items like dining out and travel due to rising living costs outpacing benefits, according to a recent Nationwide survey [1]. Over 30% said they were pulling back on essentials like groceries and medicines.
However, there is one big expense that rarely gets mentioned and could be one of the easiest to cut without impacting your lifestyle: investment fees. Here’s why this silent drain on your finances could be cutting thousands of dollars from your nest egg.
Paying a relatively high fee for investment advice or actively managed investment strategies seems like a savvy move on paper.
First the fees usually sound deceptively low. The average expense ratio for all active U.S. funds was 1% in 2024, according to Morningstar [2].
Meanwhile, professional financial advisors usually charge a percentage of assets under management (AUM), often ranging from 0.5% to 1.5%, according to Yahoo Finance [3].
Paying 1% for a professional to execute sophisticated strategies that involve options or exotic assets like private credit could seem justified. But the after-fee performance of many of these funds and strategies may fail to live up to the hype.
Only 33% of actively managed mutual funds and exchange-traded funds (ETFs) survived and outperformed their average passive peer over the 12 months through June 2025, according to Morningstar [4]. “Headlines about active managers’ superiority in navigating turbulence often decorate market declines. The data rarely backs this up—at least for the average active manager,” said the report.
Put simply, these expenses are avoidable. And cutting them out could save you a lot of money in retirement. That’s why billionaire investor Warren Buffett recommends average investors stick to low-cost index funds.
Read more: Rich, young Americans are ditching stocks — here are the alternative assets they’re banking on instead
Cutting out even a few basis points from the fees you pay for investing could make a big difference over the long-term.
To understand this, assume you retire with $1 million and put the money in an actively-traded mutual fund with a 1% fee. Your fee expense is $10,000. Meanwhile, based on Morningstar’s data, you’re lucky if the actively-managed fund has simply matched the performance of its average index counterpart.
Alternatively, you could invest $1 million into a low-cost passive fund, such as Vanguard’s S&P 500 ETF (VOO) which has an expensive ratio of just 0.03%. Your fee for a single year is just $300 while the performance is likely to be just as good if not better than the actively-managed fund.
Assuming equal performance, the difference between these two strategies is $9,700 in a single year. That’s the cost of a nice vacation. Over several years of compounding and opportunity costs, this silent expense can drain tens of thousands of dollars from your net worth.
And the best thing about cutting investment fees is that it’s easy to pull off and doesn’t require any lifestyle adjustments. Simply make a phone call to switch your advisor or click a button to switch to passive investing and you can start saving money right away.
If you’re approaching retirement, consider cutting this cost as much as you can.
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[1]. Nationwide. “The Nationwide Retirement Institute 2025 Social Security Survey”
[2]. Morningstar. “Passive Funds Beat Active Amid This Year’s Market Volatility”
[3]. Yahoo Finance. “How much does a financial advisor cost?”
[4]. Morningstar. “Fund Fees Are Still Declining, But Not as Quickly as They Once Were”
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
