3 big retirement-savings myths

Myth No. 3: A broker can help you get higher returns.

Although many money managers vow to beat the market, the odds are against it.

"About 80% of mutual fund managers underperform the market," Kotlikoff says. "In addition to buying securities that are risky, you are buying a money manager who is risky, and you are also paying a high price."

Brokerage fees can take a hefty bite out of retirement plans. A reasonable expense ratio for investments is 0.1%, Kotlikoff says. The typical investment brokerage account charges 2% a year in fees. For a portfolio yielding 5% after inflation, that reduces annual returns by 40%.

For example, a 30-year-old employee saving 6% of his $50,000 annual salary in a 401k, with a 50% employer match, might accumulate $505,474 by age 66 (assuming a typical 60-40 split between equities and fixed income and an annual return of about 8%) in an ultra-low-cost plan with an annual cost of just 0.03%. But if you subtract the typical 2% annual brokerage fees, the same person would have only $340,653 at age 66, the authors say.

"You can do all this stuff on your own without paying high fees," Kotlikoff says. "Just invest in index funds for stocks and TIPS for bonds."

This article was reported by Emily Brandon for U.S. News & World Report.

Updated June 23, 2009

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