Retirement planning sounds like one of those grown-up things we’re supposed to be doing—right up there with flossing every night and not texting our exes. So we dutifully open accounts, set our contributions, and assume we’re adulting like pros. But here’s the thing no one tells you while you’re auto-enrolling and setting your 2055 target date: a bunch of these so-called “smart” investments are quietly draining your money like that one friend who always “forgets” their wallet at brunch.
From hidden fees to outdated fund options and sneaky advisor commissions, some accounts aren’t helping you grow your money—they’re actively bleeding value while you’re busy living your life. And the worst part? Many of them are hiding in plain sight, disguised as responsible choices. It’s like playing financial Whac-A-Mole with a blindfold on.
So buckle up. We’re about to drag 11 of the most overrated, fee-hungry, quietly sabotaging investment accounts into the light. Think of this as your early retirement intervention—with fewer spreadsheets and more side-eye.
1. Forgotten 401(k)s in Previous Employer Plans
When you switch jobs, you might leave your old 401(k) behind—and those forgotten plans now total more than 29 million accounts, holding roughly $1.6 trillion in assets that continue to incur fees you’re never aware of. Conservatively estimating a 0.5 percent annual administrative fee, that’s $8 billion in fees lost to nobody’s portfolio every year alone. Even worse, you might not even remember which provider holds your account or how to access it.
These straggler accounts also carry outdated investment lineups—think high-fee mutual funds and limited options—so your money sits in underperforming assets rather than pursuing growth. With the SECURE 2.0 Act mandating a “Retirement Savings Lost and Found” database by December 29, 2024, you’ve got no excuse not to hunt yours down and roll it into a low-cost IRA or your current plan, so says MarketWatch. Plus, consolidating accounts makes rebalancing your investments easier, saving you from babysitting a bunch of dusty portfolios. Reclaiming that lost 401(k) could give your retirement a serious glow-up—minus the tragic fees. Think of it as the financial version of finding $100 in an old coat pocket, but like, 401(k)-style.
2. Variable Annuities with 3–4 Percent Annual Fees
Variable annuities are pitched as “guaranteed” income streams, but the fine print hides fees for mortality and expense charges, fund management, and optional riders—often totaling 3–4 percent per year. TransAmerica explains that a $100,000 investment can lose $3,000–$4,000 of growth annually, before you even start withdrawals. Over 20 years, that’s more than $60,000 in lost potential—basically the cost of a luxury car that you’ll never get to drive.
On top of that, surrender charges can lock up your money for 7–10 years, penalizing early withdrawals by another 4–7 percent of your account value. Even worse, many advisors steer clients toward these products because of juicy commissions, creating a conflict of interest that leaves retirees paying dearly for “safety.” Add in inflation, and your annuity income may not even cover your grocery bill in 20 years. It’s like paying extra for a seatbelt that locks you into the backseat of a slow-moving car—safe, maybe, but you’re definitely not getting ahead. If you already own one, it might be time for a second opinion (preferably from someone not collecting a sales bonus).
3. Whole Life Insurance Cash-Value Policies
Whole life isn’t just insurance—it’s often marketed as a “tax-advantaged” investment vehicle—but policy fees (mortality costs, admin charges, and commission) can exceed 2 percent annually. That’s before factoring in the low credited interest rates—typically below 4 percent—that fail to keep pace with inflation. Translation: your money might technically be “growing,” but in reality, it’s losing purchasing power every year.
If you need cash, surrendering early also triggers steep penalties and may result in taxable gains, according to Kiplinger. Many policyholders discover too late that they’ve paid tens of thousands of dollars in fees, with cash values that stagnate while other investments surge. And don’t forget: these policies can take 10–15 years just to break even. That’s a painfully long grace period to realize you’ve been throwing money into a velvet-lined money pit. If you’re not using the insurance for estate planning or specific legacy goals, it’s worth reconsidering whether you need that cash-value feature at all.
4. Target-Date Funds That Underperform by 0.68 Percent Annually
Marketed as a “set-it-and-forget-it” solution, many target-date funds charge average expense ratios of 0.68 percent—and still underperform their benchmark indices, according to The Wall Street Journal. Over a 30-year horizon, that 0.68 percent drag can shave off more than 20 percent of your ending balance versus a low-cost index fund. That’s like putting your savings on airplane mode for three decades.
These funds also use cookie-cutter glide paths that may be too conservative for your goals, shifting into bonds too early and missing out on equity returns when you still have decades to go before retirement. While convenient, that “one-size-fits-all” strategy could be costing you thousands in compounding gains. And because most people don’t check under the hood, they never notice the fees quietly siphoning returns. If you’re going the target-date route, make sure the fund aligns with your actual risk tolerance—not just your birthday. Otherwise, it’s like showing up to a marathon wearing slippers.
5. Inherited IRAs with Unexpected RMDs and Fees
You’d think inheriting an IRA is a windfall, but the “new” required minimum distribution (RMD) rules force many beneficiaries to withdraw the entire balance within 10 years—potentially pushing you into a higher tax bracket, explains Hicapitalize. If you’re not careful, those forced withdrawals can also subject you to account maintenance fees and higher advisor charges. You may even get hit with penalties if you miss an RMD deadline (spoiler alert: the IRS is not chill about that).
Plus, inherited IRAs typically lack the ultra-low expense options of employer-sponsored plans. Rolling over into your own IRA may not be allowed, so you could be stuck with funds that have 0.5 percent or higher annual fees that eat into your inherited nest egg. Worse yet, many inherited accounts are actively managed or packed with mutual funds that charge extra just to sit there. You might end up paying for “professional oversight” on an account you didn’t even ask for. If you’ve inherited one, it’s worth getting a fiduciary to walk you through your options before the fees (and taxes) start eating your legacy alive.
6. Proprietary Mutual Funds in Employer-Sponsored Plans
Employer plans sometimes feature “in-house” funds that pad the plan sponsor’s profits through higher expense ratios, often 0.3–0.5 percent above equivalent index-fund offerings. Those extra fees may seem small, but over decades they compound into significant retirement shortfalls. It’s like buying the store-brand cereal that somehow costs more—and still tastes worse.
Because these proprietary funds enjoy prime shelf real estate—inertia often keeps you from choosing lower-cost alternatives—investors end up paying for underperformance and marketing while watching their balances trail peer benchmarks. The kicker? Many employees assume their company’s 401(k) lineup was curated for performance, not profit. Sadly, that loyalty is rarely rewarded, especially when you’re stuck in a closet full of stale, high-fee funds. Worse yet, these in-house options often lack transparency, so you may not even realize you’re paying more unless you go digging. If your plan’s fund menu looks like an HR branding exercise, it’s probably time to roll your eyes and check the fine print.
7. Stable Value Funds with Crediting-Rate Floors
Stable value funds tout protection against market swings, but their crediting-rate floors (often near zero) mean you’re stuck earning little while inflation erodes purchasing power. Though administrative fees may be modest (0.25–0.35 percent), those fees plus paltry yields can leave real returns in negative territory for years. You’re basically locking up your money in a velvet-lined shoebox labeled “safety.”
Ironically, you’ll also face transfer restrictions and potential market-value adjustments if you try to move money out early, converting modest returns into losses when you need that cash most. These funds are often pitched to conservative investors or those nearing retirement, but the “stability” comes at the price of stagnation. If your plan automatically defaults you into one, it’s worth checking whether you’re being “protected” or just quietly fleeced. Inflation doesn’t care that your balance hasn’t dipped—it just makes sure your dollars buy less every year. If you’re parked here for peace of mind, ask yourself: is peace worth shrinking purchasing power?
8. Retail Mutual-Fund Share Classes (A and B Shares)
Paying up front for A-share loads (up to 5.75 percent) or surrender charges on B-shares (up to 6 percent) guarantees you lose a chunk of your money before your fund even starts investing. Even after the load is recouped, higher internal expense ratios keep your returns trailing no-load or institutional share classes. It’s like getting charged an entrance fee just to sit in the nosebleeds.
Unless you’re planning a very short-term investment, you’re almost always better off opting for the lowest-cost share class available—this isn’t the era of commission-based product pitches. A-shares and B-shares were designed in an era when brokers made their living selling products, not giving advice. These share classes still linger in many retail accounts like leftover AOL CDs—useless but somehow still here. Many investors only discover their fees when they switch advisors or roll funds into an IRA, and by then, the damage is done. Always ask if there’s a cheaper share class before you commit—your future self will thank you.
9. Health Savings Accounts Invested in Low-Yield Options
HSAs can be powerful tax-advantaged vehicles—if you actually invest the cash. Many plans default to money-market or similar low-yield options, paying as little as 0.01 percent interest. That’s effectively a wealth tax, especially with fees up to $75 per year. Leaving cash in an HSA is like storing veggies in the crisper drawer and forgetting them until they turn to mush.
Savvy savers treat HSAs like mini-IRAs, selecting mutual funds or ETFs with expense ratios below 0.20 percent, but most users never make that switch and leave valuable tax breaks on the table. If you’re healthy and don’t need to spend your HSA dollars each year, investing them for long-term growth can be a serious retirement flex. In fact, triple tax-advantaged HSAs are one of the only accounts that let you dodge taxes going in, during, and out. If yours offers investment options and you’re not using them, it’s time to level up your HSA game.
10. Real-Estate Crowdfunding Platforms with Double-Digit Fees
Platforms promise high returns in property deals, but they tack on acquisition fees (1–2 percent), annual management fees (1–1.5 percent), and even disposition fees (1 percent) when assets are sold. Combined, these charges can consume one-third of your gross returns. So much for “passive income”—you’re basically tipping everyone at the investment buffet before you get to eat.
Because many deals lock in capital for 5–10 years, you’re hit by fees throughout—so even if the property appreciates, you may walk away with less than you’d earn in a passive REIT or rental ETF with far lower costs. And don’t forget: these investments often lack liquidity, making them the financial equivalent of a deadbolt on your dollars. If the platform goes under or the deal tanks, there’s no FDIC insurance coming to save you. Always read the fine print—and ask yourself if “exclusive access” is really worth paying luxury prices for discount real estate.
11. Closed-End Funds Trading at Persistent Discounts
Closed-end funds may offer higher yield distributions, but many trade at a 5–15 percent discount to NAV—and that gap can persist for years. While tempting for “bargain” buyers, discounts often widen during stress, leaving you underwater even if underlying assets recover. It’s the financial version of buying designer jeans at an outlet only to realize they were cut weird for a reason.
You’re also on the hook for fund-level leverage costs and expense ratios (often above 1 percent), which together can erode income and principal, especially when market sentiment keeps your discount stubbornly wide. Leverage can boost returns, sure—but it also magnifies losses, and not in a fun, TikTok-viral way. Some funds even cut their distributions, leaving investors stuck with both a capital loss and a smaller yield. Unless you’re deep into due diligence and love the thrill of discounts that might never close, you’re probably better off sticking with ETFs or open-end funds that play fair.
This article is for informational purposes only and should not be construed as financial advice. Consult a financial professional before making investment or other financial decisions. The author and publisher make no warranties of any kind.
