Your Retirement Income Projection Part 3: Fee Analysis

Estate Planning Guidance for Those Without Heirs

This article is part three of a three-part series in which we’ll dig deeper into the first aspect of preparing your comprehensive written retirement income plan: the retirement income projection. This series is based on content that originally appeared in our book, Momma’s Secret Recipe for Retirement Success, and you can grab your copy here.

In our last installment, we shared details on the second step in developing your comprehensive written retirement income plan, which is a risk analysis. As a reminder, this series is all about completing the three aspects that make up step one in our four-part process of completing your Retirement Income Projection:

  1. Income analysis
  2. Risk analysis
  3. Fee analysis

In this article, we’ll walk you through the fee analysis step.

Remember our previous hypothetical example with Bob and Carol? We talked about them in Part One and Part Two of this series, so read those first if you haven’t already.

Bob and Carol’s broker of 22 years had never provided them with the total fees they were paying in writing. Bob and Carol thought they were paying 1% in total fees because when they asked about fees, their broker would say something like they were “paying around 1% in fees.” We completed a comprehensive fee analysis and found this wasn’t true, not even close to the truth when you take into consideration the total fees they were paying.

What Bob and Carol’s Fees Revealed

Our fee analysis revealed Bob and Carol were paying 3.08% per year in total fees!

Here are the fees we calculated for each part of their portfolio:

  • The bank funds of $20,000 had a 0.00% annual fee so the total annual cost is $0.
  • Their variable annuity of $380,000 had the following fees: M&E (mortality and expenses) fees of 1.5% on $380,000, equaling annual costs of $5,700
    • + Sub-accounts fees of 1.05% on $380,000, equaling annual costs of: $3,990
    • + Annuity rider fees of 1.25%, equaling annual costs of $4,750
    • + Estimated trading fees at the sub-account level of 0.81%, equaling annual costs of $3,078
    • = Total annual variable annuity fees of 4.61%, equaling total annual costs of $17,518
  • Their stock portfolio of $200,000 had the following fees: Advisory fees of 1.2% on $200,000, equaling total annual costs of $ 2,400
    • + Estimated trading fees of 0.05% on $200,000, equaling total annual costs of: $100
    • = Total stock portfolio annual fees of 1.25%, equaling total annual costs of $ 2,500
  • Their mutual fund portfolio of $1,000,000 had the following fees: Advisory fees of 1.5% on $1,000,000, equaling total annual costs of: $ 15,000
    • + Mutual fund fees of 0.61% on $1,000,000, equaling total annual costs of: $ 6,100
    • + Est. mutual fund trading fees of 0.81% on $1,000,000, equaling total annual costs of: $8,100
    • = Total mutual fund portfolio annual fees of 2.92%, equaling total annual costs of $29,200

They were paying 3.08% in fees on their $1,600,000 portfolio, equaling total annual costs of $49,218.

Over the next 20 years to age 85, they were projected to pay total fees of $984,360.


SEE ALSO: Why Should Retirees Avoid Volatility?


New Portfolio Fee Reduction

Bob and Carol’s new plan allocated their $1,600,000 portfolio into the following asset categories:

  • Their self-managed stocks had a 0.00% annual fee, so the total annual cost was: $0
  • Their Bucket #1 fixed index annuity annuities of $800,000 had 1.00% in total fees of $8,000
  • Their Bucket #2 bank funds of $100,000 had a 0.00% fee so the total annual cost was: $0
  • Their Bucket #3 growth with a stop loss of $500,000 had 1.83% in total fees of $9,150

Their total annual fees on their new $1,600,000 portfolio equaled $17,150.

Their total annual fee percentage on their new $1,600,000 portfolio equaled 1.07%.

Total annual fee savings were calculated as follows:

  • Current plan total annual fees of $49,218
  • Less new plan total annual fees -$17,150
  • Equals annual fee savings of $32,068

Their new plan projected fee savings over 20 years to age 85 of $640,360!

Final Thoughts on Fee Analysis in Your Retirement Income Projection

As we finish out this series, here are a few reminders about why each of the three steps in your retirement income projection is crucial:

Your income analysis is the first step, and it is the best way to set your mind at ease about how you’ll replace your paycheck once you retire. You want to be sure you can create income for yourself every month for the rest of your life – just think about how much stress and tension will dissolve when you have a plan!

Your risk analysis is essential because so many retirees are taking on far more risk than they realize – and this is dangerous when you could lose much more money than you realize in the next stock market downturn.

When it comes to the usefulness of a fee analysis, all you need to do is review Bob and Carol’s example above to see how significantly your fees can impact your nest egg.

Taken together, these three steps constitute the first part of your retirement income projection. This process puts you on the path to creating your all-important comprehensive written retirement income plan. If you’d like help in completing these steps, give us a call today to discuss our professional analysis process.

If you found this content helpful, check out more valuable retirement planning information available on our blog and radio show!

Peak Financial Freedom Group
2520 Douglas Boulevard, Suite 110
Roseville, CA 95661

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2nd Opinion Package available to Qualified Retirees and Soon-To-Be-Retirees may include free consultations, a free retirement income plan, risk analysis, and fee analysis. In addition, a comprehensive written retirement income plan may be provided to those who complete the entire process. Qualified Retirees and Soon-To-Be Retirees must have a minimum of $1,000,000 of investible assets such as IRA’s, 401K’s from past employers, stocks, bonds, mutual funds, bank accounts, money markets, CD’s, etc., but DOES NOT include real estate, businesses, limited partnerships, 401K/retirement plans that can’t be moved to another plan, and other illiquid type assets.


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