Retirement Retirement Planning

Why Your 401(k) May Be Worth Far Less Than You Think

Your account may only look healthy on paper.

By Catherine Collins , Edited by Laura Hohenstein

Updated May 28, 2026

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When most workers look at their 401(k) retirement plans, they usually glance at the balance and close their statements. However, even though seeing a solid balance in your account might feel reassuring, you might not have as much for your retirement goals as you think.

The reason is that although the money sitting in your account might feel substantial, fees, taxes, and inflation can all make your nest egg feel smaller once you retire. Your purchasing power as a retiree will differ from that of a working adult, and your expenses will change as well. Here's everything you need to know about the quiet factors that may erode your retirement account's value.

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The biggest hidden money leak

Every 401(k) account has fees, and many of these fees are often hidden or buried inside the small print of your plan. Some examples of fees you may have in your 401(k) include expense ratios, plan administration fees, investment management fees, and more. Many people do not see the fees unless they look at exactly how much they're spending every year.

What's shocking is that a 1% investment fee might not seem like much today, but it can add up to thousands of dollars in fees taken from your account over time. In fact, investing $100,000 at a 1% annual fee could cost roughly $30,000 in lost compounding growth over 20 years.

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How to find out how much you're paying in 401(k) fees

If you want to know how much you're paying in 401(k) fees, review your Summary Plan Description (SPD) documents. Your plan document should list the cost of your 401(k) administration fees. If you want to know the expense ratios for the assets in your 401(k), read the fine print.

Each asset that you have, whether it's a mutual fund, individual stock, or something else, should have an expense ratio attached to it. These can range from as low as 0.01% to 2%.

How taxes may impact your 401(k) income in retirement

Traditional 401(k) withdrawals are taxed as ordinary income. That's because with a traditional 401(k), you contribute pre-tax income. Most people have their 401(k) contributions deducted from their paychecks. Because you get tax benefits now, you have to pay taxes on it eventually, usually when you withdraw it in retirement.

That means that in the future, even if your nest egg looks like $500,000, for example, you will still have to pay taxes on what you withdraw, so your account portfolio is not worth as much as it appears.

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Different types of retirement accounts are taxed differently

A Roth IRA and a traditional 401(k) have different tax benefits. With Roth accounts, you contribute after-tax income. That means that when you're in retirement, as long as you meet certain qualifications, you can withdraw the money tax-free.

So, having a combination of accounts, such as a Roth account and a Traditional 401(k), can help you maximize your tax strategy in retirement.

Don't forget to factor in the impact of inflation

Finally, in addition to fees and taxes, the last factor that can erode your 401(k) is inflation.

Over the last 30 years, the average annual inflation rate has been 2.5%. That means that even though you may have a larger nest egg in the future, it may not go as far as it does today.

Other important retirement expenses to consider

Many people are surprised when they reach retirement and realize that it is much more expensive than expected. Many people understand that inflation may reduce the value of their money over time. However, few people plan for large expenses, such as health care costs.

A Fidelity study found that people starting at age 65 will spend, on average, $172,500 on health care during retirement. That's why it's so important to plan for retirement ahead of time and to have more in your nest egg than you think you'll need.

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The next steps to take to protect your nest egg

If you're not sure whether you're paying high fees or will face significant taxes in the future, now is the time to start planning. First, review your plan's fund expense ratios. Estimate your after-tax withdrawal income for retirement.

If you need help, you can speak to a financial advisor about the best route to take to ensure you can retire on time with enough funds to continue your lifestyle. The financial planner can help you determine not only which retirement accounts to have but also what order to withdraw them from to minimize your taxes.

Bottom line

If you want to have a stress-free retirement one day, you have to plan how much you need to live on in retirement. That means taking into account what can quietly erode your 401(k) funds.

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