However, $350,000 is by far more than what most Americans save. According to the Federal Reserve's Survey of Consumer Finances, the average household approaching retirement has only $100,000 in total retirement savings among all of their accounts.

What are these fees, then, that are taking such a big bite out of your retirement account? There are four kinds: administrative fees, marketing fees (sometimes called 12-b1 fees), investment management fees and trading costs.

The first three types of fees are shown, as an aggregate total, in each mutual fund's expense ratio, and are generally reported in your 401(k)'s "summary documents" as a percentage of assets.

For example, if you had $50,000 invested in a mutual fund that has an expense ratio of 1%, it means that you pay 1%, or $500, of the total balance you have invested in the fund in fees. This 1% is charged each year regardless of the mutual fund's performance.

However, the expense ratio does not include the last type of fee -- trading costs. Despite this omission, rest assured that you are indeed paying this fee as well. Trading costs are pretty complex, but the best way to understand them is to know simply that they rise the more often a mutual fund buys and sells its assets, i.e., the more it is being "actively managed."

If you knew that 30% of your retirement savings are chipped off, you would probably be outraged. It seems like a steep price to pay for investment management, doesn't it?

But the investment industry disagrees, arguing that such costs are justified because mutual fund expenses are regulated by the competition of the free market, and what consumers are paying is simply the cost of doing business.

The problem with this argument is that it's not true.

Index funds, for example, have often outperformed actively managed mutual funds while charging a small fraction of the fees. But investing more in index funds will not come close to fixing the broken, expensive 401(k) system.

There's no way around it: the mutual fund system we have can't be fixed, and must be replaced. Why?