What's your drawdown percentage and how much of that do you spend on financial fees?

zagfles

pip895 said:

bostonerimus said:

pip895 said:

Age late 50s
Retired 10 years
Income rental & drawdown just commenced at 4.3% 
Financial fees - platform ~0.1% funds 50% active average ~0.3%

Current plan is that drawdown will reduce to ~3% on SP kicking in and stop from age 75 to be toped up and replaced by ISAs  all subject to change when the rules change..
 

Sounds like a tenable, well considered plan. Looks like about 10% of your drawdown is going to financial fees. It will be interesting to see the range of that percentage.

I don't really see the point of stating the fees as a % of the drawdown I happen to be withdrawing - after all on that basis your fees would be enormous - infinite in fact.

yes a completely non sensical way of expressing fees, the % of your drawdown is irrelavent, the fees should instead be seen as a drag on returns. You pay fund and platform fees for ongoing investments, not for drawdown. You could have all your pension in cash then your fees would be zero! Or you could, like many people do, use your SIPP to fund the gap between early retirement and when state and DB pensions kick in, so may drawdown 10% a year for about 10 years. Does that mean you should accept much higher fees than someone who only draws down 4%

The fee/drawdown ratio is meaningless.

bostonerimus

zagfles said:

pip895 said:

bostonerimus said:

pip895 said:

Age late 50s
Retired 10 years
Income rental & drawdown just commenced at 4.3% 
Financial fees - platform ~0.1% funds 50% active average ~0.3%

Current plan is that drawdown will reduce to ~3% on SP kicking in and stop from age 75 to be toped up and replaced by ISAs  all subject to change when the rules change..
 

Sounds like a tenable, well considered plan. Looks like about 10% of your drawdown is going to financial fees. It will be interesting to see the range of that percentage.

I don't really see the point of stating the fees as a % of the drawdown I happen to be withdrawing - after all on that basis your fees would be enormous - infinite in fact.

yes a completely non sensical way of expressing fees, the % of your drawdown is irrelavent, the fees should instead be seen as a drag on returns. You pay fund and platform fees for ongoing investments, not for drawdown. You could have all your pension in cash then your fees would be zero! Or you could, like many people do, use your SIPP to fund the gap between early retirement and when state and DB pensions kick in, so may drawdown 10% a year for about 10 years. Does that mean you should accept much higher fees than someone who only draws down 4%

The fee/drawdown ratio is meaningless.

The reason I asked for people to include other income was so that we could see the size of financial fees to their total income. If you are doing drawdown from a SIPP, ISA or general account then you need to think holistically. My question could have been better expressed, but it certainly isn't irrelevant if fees are one of your largest costs when you retire and you don't have wages coming in anymore. Maybe it's clearer if I ask what percentage of your annual budget is take up by financial fees such as IFA, platform and fund fees? The drawdown percentage is also good to know to see if it's sustainable.

bostonerimus

pip895 said:

bostonerimus said:

I think this is really encouraging. Fees seem to be mostly just a few tenths of a percent and withdrawal rates are less than 4% and where they are higher there's a plan to taper down when events like SP starting happen. Of course we need to be careful as people with sensible withdrawal rates and sensible fees are probably the ones most likely to respond...or even know their numbers.

In my case I am only withdrawing funds at all because I am concerned about hitting the LTA.  Up until a month back I was like you, not even drawing down from the SIPP.  I guess you aren't troubled by such issues being in the US?  

People all over the world have to worry about paying for retirement and that goes for the US too. The landscape is not identical, but it is broadly similar with companies ditching DB plans and transferring the responsibility and risk for pensions onto employees. The problems with regular people having to manage large pots of money to generate lifetime income, rock bottom interest and annuity rates and the cost of fees and the quality and cost of financial advice are similar. The UK is actually better than the US in many respects ie. there is better regulation and the size of the ISA allowance is an amazing bit of tax relief. The US has had big reductions in financial fees because of companies like Vanguard and now Schwab and Fidelity, but there are still plenty of funds with high fees and "front end loads" and financial advice companies prepared to charge high fees to the naive.

So yes, I worry about this stuff which is why I DIY and keep the costs I pay on my invested assets as low as I can.

zagfles

bostonerimus said:

zagfles said:

pip895 said:

bostonerimus said:

pip895 said:

Age late 50s
Retired 10 years
Income rental & drawdown just commenced at 4.3% 
Financial fees - platform ~0.1% funds 50% active average ~0.3%

Current plan is that drawdown will reduce to ~3% on SP kicking in and stop from age 75 to be toped up and replaced by ISAs  all subject to change when the rules change..
 

Sounds like a tenable, well considered plan. Looks like about 10% of your drawdown is going to financial fees. It will be interesting to see the range of that percentage.

I don't really see the point of stating the fees as a % of the drawdown I happen to be withdrawing - after all on that basis your fees would be enormous - infinite in fact.

yes a completely non sensical way of expressing fees, the % of your drawdown is irrelavent, the fees should instead be seen as a drag on returns. You pay fund and platform fees for ongoing investments, not for drawdown. You could have all your pension in cash then your fees would be zero! Or you could, like many people do, use your SIPP to fund the gap between early retirement and when state and DB pensions kick in, so may drawdown 10% a year for about 10 years. Does that mean you should accept much higher fees than someone who only draws down 4%

The fee/drawdown ratio is meaningless.

The reason I asked for people to include other income was so that we could see the size of financial fees to their total income. If you are doing drawdown from a SIPP, ISA or general account then you need to think holistically. My question could have been better expressed, but it certainly isn't irrelevant if fees are one of your largest costs when you retire and you don't have wages coming in anymore. Maybe it's clearer if I ask what percentage of your annual budget is take up by financial fees such as IFA, platform and fund fees? The drawdown percentage is also good to know to see if it's sustainable.

But the ratio of fees to drawdown income is meaningless. You may as well measure fees against shoe size.

Fees are charged (generally) for management of the capital. They are usually taken from that capital. If your capital increased eg because investments did well or you got an inheritance, won the lottery etc, your fees would increase. But if you kept the same income your fees are now a greater % of your income. It that supposed to be a bad thing?

Getting low fees and good value is of course something to aim for, but measure it in a meaningful way, ie against investment pot, not how much you happen to draw from it.

[Deleted User]

Something that can be hard to monitor but is almost always present is a tax drag.  For example foreign withholding taxes or UK’s stamp duty. In some cases these can be negated or minimized. When these are present, its an additional “loss” when comparing vs benchmark/total return. 

bostonerimus

zagfles said:

bostonerimus said:

zagfles said:

pip895 said:

bostonerimus said:

pip895 said:

Age late 50s
Retired 10 years
Income rental & drawdown just commenced at 4.3% 
Financial fees - platform ~0.1% funds 50% active average ~0.3%

Current plan is that drawdown will reduce to ~3% on SP kicking in and stop from age 75 to be toped up and replaced by ISAs  all subject to change when the rules change..
 

Sounds like a tenable, well considered plan. Looks like about 10% of your drawdown is going to financial fees. It will be interesting to see the range of that percentage.

I don't really see the point of stating the fees as a % of the drawdown I happen to be withdrawing - after all on that basis your fees would be enormous - infinite in fact.

yes a completely non sensical way of expressing fees, the % of your drawdown is irrelavent, the fees should instead be seen as a drag on returns. You pay fund and platform fees for ongoing investments, not for drawdown. You could have all your pension in cash then your fees would be zero! Or you could, like many people do, use your SIPP to fund the gap between early retirement and when state and DB pensions kick in, so may drawdown 10% a year for about 10 years. Does that mean you should accept much higher fees than someone who only draws down 4%

The fee/drawdown ratio is meaningless.

The reason I asked for people to include other income was so that we could see the size of financial fees to their total income. If you are doing drawdown from a SIPP, ISA or general account then you need to think holistically. My question could have been better expressed, but it certainly isn't irrelevant if fees are one of your largest costs when you retire and you don't have wages coming in anymore. Maybe it's clearer if I ask what percentage of your annual budget is take up by financial fees such as IFA, platform and fund fees? The drawdown percentage is also good to know to see if it's sustainable.

But the ratio of fees to drawdown income is meaningless. You may as well measure fees against shoe size.

Fees are charged (generally) for management of the capital. They are usually taken from that capital. If your capital increased eg because investments did well or you got an inheritance, won the lottery etc, your fees would increase. But if you kept the same income your fees are now a greater % of your income. It that supposed to be a bad thing?

Getting low fees and good value is of course something to aim for, but measure it in a meaningful way, ie against investment pot, not how much you happen to draw from it.

If fees are withheld by fund companies from your capital that is where the reduction of SWR from say 4% to 3.5% over a whole retirement is a valid way to look at things, but if trading fees come out of your proceeds from the sale or you have to pay an IFA 0.5% that will simply reduce the amount you have to spend. So yes when and where the fees are charged is important. All I'm saying is that the retiree must budget for financial fees because they will be a significant cost. Understanding how and when they are paid is part of sensible planning, just like knowing you mortgage or rent payments and I think it's a major cost that is often overlooked.

bostonerimus

Deleted_User said:

Something that can be hard to monitor but is almost always present is a tax drag.  For example foreign withholding taxes or UK’s stamp duty. In some cases these can be negated or minimized. When these are present, its an additional “loss” when comparing vs benchmark/total return. 

Yes, some funds are more tax efficient than others.

[Deleted User]

bostonerimus said:

Deleted_User said:

Something that can be hard to monitor but is almost always present is a tax drag.  For example foreign withholding taxes or UK’s stamp duty. In some cases these can be negated or minimized. When these are present, its an additional “loss” when comparing vs benchmark/total return. 

Yes, some funds are more tax efficient than others.

It can get fairly complex. Not just one fund vs another. For example, I have 3 types of brokerage accounts in Canada. If I hold US investments directly then two of these accounts allow me to avoid withholding taxes but not the third one. If I hold a Canadian fund which holds US investments then I lose 15% on dividends to withholding taxes. Its country by country; a bit of a pain.  

And (I think) UK stamp duty can be avoided altogether if you buy local stocks via an ETF. 

ManMadeWays

I think I see where the OP is coming from. I am coming up for 59 . I pay circa 0.2% platform fee, circa 0.8% fund fees  and 0.6% to an IFA. He has sold out his business to another (that had a 1% standard charge)  and wanted to put my charges up to 1%. I said no.

He suggested I could use cheaper trackers to reduce the fund fees to 0.2% ! And then I thought, well I could do that myself.

Just shove it in a Vanguard all world tracker at <0.2% fund fee and max £375 platform fee.

So, returning to the original question, I plan to draw down circa 1.5%, (wife has DB as well) , so paying 0.6% means the IFA gets nearly half what I take out to live on , I could boost my income by 50% by DIY .....

bostonerimus

ManMadeWays said:

I think I see where the OP is coming from. I am coming up for 59 . I pay circa 0.2% platform fee, circa 0.8% fund fees  and 0.6% to an IFA. He has sold out his business to another (that had a 1% standard charge)  and wanted to put my charges up to 1%. I said no.

He suggested I could use cheaper trackers to reduce the fund fees to 0.2% ! And then I thought, well I could do that myself.

Just shove it in a Vanguard all world tracker at <0.2% fund fee and max £375 platform fee.

So, returning to the original question, I plan to draw down circa 1.5%, (wife has DB as well) , so paying 0.6% means the IFA gets nearly half what I take out to live on , I could boost my income by 50% by DIY .....

Yes the cost of your IFA comes right out of your income and your fund fees are going to reduce your overall SWR if they are taken out of your capital. People should be aware of how these fees impact their income and budget.