Fees eat at your retirement savings, quickly resulting in sub-par performance, even for the best managed assets. Do you know what fees are being deducted from your retirement portfolio? Are there opportunities to reduce the expenses built into their investments? At RetireOne™ we specialize in the lowest cost options and clearly disclose all fees.
The following chart shows an investment portfolio with a 4% annual return over 20 years when the investment either has an ongoing fee of 0.25%, 0.50% or 1%. Notice how the fees affect the investment portfolio over 20 years. (Source: “Investor Bulletin: How Fees and Expenses Affect Your Investment Performance,” SEC Pub. No. 164 (2/14))
It is best to look at expenses in total for each retirement account. Consider the following fees and look at the sum of them for the account as a percentage of the assets in the account.
Only insurance companies can legally guarantee income against sequence of return risk and longevity risk. Annuities are insurance products, so take the time to understand what it is that you are insuring and what they cost. Think of the annuity fees like an insurance premium. You are paying the insurance company to bear risk. The fees often accompanying variable annuities are:
1. Mortality expenses (M&E)
This is a fee charged by the insurance company to provide you with the insurance product. This variable annuity fee can range from 0.20% – 1.5% of the policy value per year. RetireOne™ carries several variable annuities with M&E fees of 0.20%.
2. Administrative expenses
Many variable annuity policies have a separate administrative fee to cover the cost of mailings and ongoing service. This fee can range from 0.10% – 0.30% of the policy value per year. RetireOne™ carries several variable annuities with zero administrative fees.
3. Investment expense ratio
Inside a variable annuity, the underlying stock and bond investment choices, called sub-accounts, will have an investment management fee which can range from 0.25% to over 2.00% of the value in that account per year. These fees are similar to the internal expenses or expense ratio of mutual funds and ETFs. RetireOne™ carries many options at the low end of the investment management fee scale. Be sure to review the large selection of sub-account choices available for investment in our variable annuities.
4. Additional cost of riders
Riders are extra features on your variable annuity policy that provide you with additional guarantees or death benefits. Depending on the extent of the benefit, riders can cost 0.25% to over 1.00% of the policy value per year. RetireOne™ pays close attention to the cost-effectiveness of the riders on policies that we support. Please give us a call to have our retirement specialists explain the benefits and costs of the available riders.
5. Surrender charges
Surrender charges can vary from 3 years to 15 years in length, which limits your flexibility. Your circumstances may change. Solutions without surrender charges provide flexibility that you may need. RetireOne™ never carries a variable annuity that has surrender charges. We pride ourselves in developing and carrying products that maximize your flexibility, giving you the confidence that you can change your mind without penalty for doing so.
For brokerage, mutual fund, IRA, 401k, or similar retirement accounts, the following fees may be assessed:
1. Annual account fee or custodian fee.
The custodian or administrator may charge an annual account fee, which can range from $25 – $90 per year. Many firms will also charge an account closing fee if you terminate the account. Closing fees may range from $25 – $150 per account.
2. Expense ratio or internal expenses
Mutual funds and ETFs will have an investment management fee which can range from 0.25% – 2.00% of the value in that account per year. These expenses are not deducted from your account, rather the investment return you receive is already net of the fees. More unusual funds, like international funds, or small cap funds, will have higher expenses than a large cap equity fund or bond fund. A fund with an expense ratio of 0.90%, means that for every $1,000 invested, approximately $9 per year will go toward operating expenses.
3. Investment management fees or investment advisory fees
Investment management fees are charged as a percentage of the total assets managed. These types of fees can often be at least partially paid with pretax or tax-deductible dollars. These fees may cover additional services such as comprehensive financial planning, tax planning, estate planning, budgeting assistance, etc.
4. Transaction fee
Many brokerage accounts charge a transaction fee each time an order to buy or sell a mutual fund or stock is placed. These fees can range from $9.95 per trade to over $50 per trade.
5. Front-end load
In addition to the ongoing operating expenses, “A share” mutual funds charge a front-end load, or commission.
6. Back-end load or surrender charge
In addition to the ongoing operating expenses, “B share” mutual funds charge a back-end load, or surrender charge. A back-end load is charged at the time you sell your fund. This fee usually decreases for each successive year you own the fund.