Is paying 1% a year worth it when I already have a pension?
By Seth Deal, CPA/PFS ·
It can be, but a pension changes the math. Because your pension already covers part of your spending, you’ll probably pull less from your savings each year, so a 1% fee takes a bigger bite out of what you actually spend. It’s worth it when you want someone to handle the investing and the tax decisions for you over the long run, not because the pension needs managing.
What 1% looks like in dollars
A percentage fee is charged on your whole balance, not on what you take out.
Say you have $800,000 saved. At 1%, that’s $8,000 a year.
Without a pension, someone might withdraw 4% a year, or $32,000. The fee would be a quarter of that.
With a pension covering most of the bills, you might only need $20,000 a year from savings. Now the same $8,000 fee is 40% of what you draw.
That’s the part people with a pension tend to miss. The fee doesn’t shrink just because you need less.
When a percentage fee makes sense
It usually makes sense if you don’t want to manage your investments yourself, now or at 80. It also helps if you want your withdrawals from DCP, IRAs and Roth accounts planned around taxes every year, and someone keeping the whole plan current as rules and markets change.
It’s worth extra weight if one spouse handles all the money. A percentage-fee relationship means the other spouse has someone to call if that person is gone.
When it probably doesn’t
If you’re comfortable holding a few low-cost index funds, and what you really need is the big decisions made in the right order, a flat-fee plan usually costs less. That’s true for most people whose pension and Social Security cover their core spending.
Three questions to ask any advisor
Is the fee charged on my pension? It shouldn’t be, since nobody manages it but DRS.
Does the fee include planning and tax advice, or only investing?
Are you fee-only, or do you also earn commissions on products like annuities or insurance?
What it costs with me
I’m a CPA and fee-only fiduciary, and I don’t charge anything based on your pension. I offer both kinds of pricing, because both fit some people.
A One-Time Plan starts at $3,000. The Ongoing Plan is a flat fee, quoted up front, starting at $6,500 a year and billed quarterly. Neither one requires moving your investments.
If you’d rather hand off the investing, Wealth Management is a percentage of the assets I manage. On a breakpoint schedule, the maximum is 0.85% on accounts up to $1,000,000, applied to the whole account, and lower above that. With $500,000 or more under management, the planning fee is waived.
On $800,000, that’s at most $6,800 a year. Whether that’s worth it depends on how much of the work you want off your plate, and I’d rather help you figure that out than sell you on it.
The first step is a free 45-minute Retirement Clarity Assessment on Zoom. You’ll know which option fits, if any, before you spend anything.