(Image credit: Getty Images)
If there’s one client worry I hear more than any other, it’s this: Will I run out of money before I run out of time?
They’re not alone. According to Allianz Life’s 2024 Annual Retirement Study, 63% of Americans say they worry more about running out of money than dying — a number that’s climbed from 57% just two years earlier.
That worry keeps people up at night, and understandably so.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more – straight to your e-mail.
Profit and prosper with the best of expert advice – straight to your e-mail.
But here’s what I’ve learned in more than two decades of helping families navigate retirement: One of the most overlooked ways to protect your nest egg isn’t about picking better stocks or timing the market. It’s about controlling what you can actually control — and cost sits at the top of that list.
What you can control as an investor
Many investors spend their energy worrying about things completely outside their influence — what the market will do tomorrow, where interest rates are headed, what’s happening overseas.
When you strip away the noise, there are only a few levers you can pull:
- The investments you own
- How diversified you are across asset classes and geographies
- When and how you rebalance
- How much you’re paying in costs — the one factor that reliably and predictably erodes your returns year after year
In the Marine Corps, we were trained to focus on what we can control and let go of what we can’t. That same discipline applies to investing. You can’t control the market, but you can control the price you pay to participate in it.
The layers of investment cost
When I ask people what they’re paying in investment costs, most can give me a rough estimate of their adviser’s fee, but few can tell me what they’re paying before that fee gets charged, because some potentially significant costs are baked into the products themselves.
Expense ratios. This is the baseline annual cost of owning a mutual fund or ETF, covering management fees, administrative costs and operational overhead. It’s deducted directly from the fund’s returns before you ever see them.
Most investors have at least a vague awareness of expense ratios, but they tend to underestimate how much they compound over time.
According to Morningstar’s 2024 US Fund Fee Study, the asset-weighted average expense ratio for actively managed funds was 0.59%, while passive index funds averaged just 0.11%.
That gap may not sound like much in a single year, but over a 20- or 30-year retirement, it could represent a six-figure difference on a million-dollar portfolio.
Cash drag. Many funds hold a portion of assets in cash — sometimes for liquidity, sometimes out of caution. That uninvested cash could create a performance drag of around 0.25% per year, and it’s not something you’ll find broken out on any statement.
Some funds also engage in securities lending — lending out the securities they hold in exchange for a fee. More often, that revenue goes to the fund company, not to you.
Turnover costs. Actively managed funds buy and sell holdings frequently. Every trade comes with transaction costs — bid-ask spreads, market impact and potential capital gains taxes in taxable accounts. This is a tax expense passed down to shareholders.
Third-party money manager fees. Some advisory firms don’t manage your investments directly. Instead, they outsource to a third-party money manager, sometimes called a TAMP (turnkey asset management platform).
That arrangement typically adds another layer of costs — often around 0.50% — that is largely invisible to the client. You may never see it itemized on a statement, because it’s embedded in the overall management structure.
Add it up. Assuming your fund experiences each of these costs simultaneously, an actively managed fund with a 0.60% expense ratio, plus 0.25% in cash drag, plus 0.25% in turnover costs, plus 0.50% for a third-party manager — you’re looking at roughly 1.60% in total underlying costs before your adviser has charged you a single dollar. That’s the number that deserves your attention.
The power of a low-cost, passively managed portfolio
Here’s the good news: You don’t have to accept those costs. A globally diversified portfolio built with low-cost index funds or ETFs could bring your total underlying investment cost down to around 0.05% to 0.10%.
There’s a mountain of evidence supporting this approach. Vanguard’s research has historically shown that lower-cost funds tend to outperform higher-cost funds over time on a net-of-fees basis.
For the 10-year period ending December 31, 2024, 85% of Vanguard’s funds outpaced the average results of competing funds. As of the end of 2025, Vanguard’s average fund expense ratio stood at just 0.07%, compared with an industry average of 0.44%.
The data from S&P Dow Jones Indices tells a similar story. Their year-end 2024 SPIVA Scorecard found that 65% of actively managed large-cap U.S. equity funds underperformed the S&P 500 during the year.
Stretch the time horizon to 20 years, and the numbers become even more stark: More than 94% of all domestic equity funds underperformed the S&P 1500 Composite Index.
Keeping in mind that past fund performance is not a guarantee of future results, what could this mean in real dollars?
Take a hypothetical $1 million portfolio earning an average annual return of 7.2%. Over 25 years, at a total underlying cost of 0.05%, that portfolio grows to approximately $5.58 million. At a total underlying cost of 1.10%, it grows to roughly $4.35 million. That’s approximately $1.23 million left on the table — not because of bad market returns, but because of cost.* For many retirees, that could make the difference between confidence and worry.
*Hypothetical example; does not represent any specific investment nor reflect the deduction of investment fees or taxes. Investing involves risk, including possible loss of principal.
Don’t forget the adviser fee
But the adviser fee is a separate and important layer of cost, and it should be evaluated honestly. At a minimum, your adviser should be providing comprehensive financial planning:
- Investment management
- Retirement income projections
- Tax-minimization strategies
- Rebalancing portfolios
- Insurance reviews
- Legacy planning
- Ongoing adjustments as your life changes
If all you’re getting is a quarterly statement and a phone call, you may be overpaying.
It’s also worth noting that adviser fees should scale with portfolio size. A client with $5 million in assets should not be paying the same percentage rate as a client with $1 million. The work doesn’t increase fivefold, and neither should the cost.
In my opinion, a reasonable all-in target — meaning your total underlying investment costs plus your adviser’s fee — should be around 1.5% or less, depending on the size and complexity of your portfolio. If your all-in cost is significantly higher than that, it’s worth asking why.
What to ask your adviser
Knowledge is power, and one of the simplest things you can do to protect your retirement is to ask the right questions. Here are four I’d encourage you to bring to your next advisor meeting:
- What is the average expense ratio across my portfolio? If the answer is north of 0.50%, there may be room for improvement.
- Are there third-party money managers involved, and what do they cost? If your adviser is outsourcing portfolio management, you deserve to know what that arrangement costs you.
- What is the total all-in cost I’m paying annually? This includes expense ratios, any third-party manager fees and the adviser’s own fee. Many investors have never seen this number aggregated in one place.
- How does your fee change as my portfolio grows? A fee that made sense on a $500,000 portfolio may not be appropriate on $2 million. Your adviser should be transparent about this.
You’ve earned your retirement. You deserve to know exactly what it’s costing you.
Cost is a silent retirement risk
In the Marines, we had a saying: Plan for the worst, hope for the best. Market downturns, inflation, health care surprises — those are the risks most people think about.
But there’s a quieter risk that compounds slowly and silently over decades: the cost of your investments.
Unlike market volatility, cost is predictable. Unlike economic cycles, cost is within your control. Unlike so many of the things retirees worry about, cost is one of the easiest problems to address — once you know where to look.
You can’t control the market, but you can control what you pay to be in it. That single decision, compounded over a lifetime of investing, may be one of the most powerful financial moves you ever make.
