This article was first posted January 1, 2016.
Back in July 2014, Retire Early noted a CNN Money Magazine article touting Wade Pfau's "research" showing that the well-worn "4% rule" for retirement withdrawals is no longer valid. (See, Professor Wade Pfau: 3% is the new 4% Safe Withdrawal Rate (SWR)? ). Of course, that 3% withdrawal rate was based on the assumption that the retiree is allowing a financial advisor to skim them for 1% per annum in fees and costs.
For 2015, Dr. Pfau (this time with coauthor Wade Dokken), is back with more blockbuster results on retirement withdrawals. In a glossy report Rethinking Retirement: Sustainable Withdrawal Rates for New Retirees in 2015 the authors warn 2015 retirees of the need to limit the first year withdrawal to just 1.70% of assets. That tragically low number is based on the assumption that the financial advisor and the mutual fund managers he recommends are skimming the client for North of 1.60% per annum in fees and costs. Merely dumping the high-fee financial advisor and investing in a low-fee portfolio of index funds with expenses in the 0.10% range would allow our hapless retiree to nearly double his annual withdrawal.
Rethinking Retirement, indeed. [LOL]
Resources for more information
Rethinking Retirement Sustainable Withdrawal Rates for New Retirees in 2015, Wade D. Pfau & Wade Dokken. -- You'll have to save a lot more for retirement if a financial advisor and the mutual fund managers he recommends are taking a lot of your wealth in excessive fees. Pfau and Dokken's "research" assume a 1.67% skim rate for stocks, 1.60% for bonds. No wonder our beleaguered retiree is only left with 2%.
Vanguard's fees are costing me a new car? (2013) You'll have to save a lot more for retirement if a financial advisor and the mutual fund managers he recommends are taking a lot of your wealth in excessive fees.
The Federal Thrift Savings Plan: A Model for the Private Sector? (2008) Lobbying arm of the mutual fund industry complains that it's not fair to compare their products to the low costs of the TSP.
ExxonMobil Savings Plan Brochure (PDF) -- Fund expense ratios and 401k mgmt fee on page 17 of document. Annual fees ranges from 2 basis points for the bond fund to 6 basis points for the international equity fund.
USA Today -- Are fees draining your 401(k) retirement savings? (Aug 25, 2009) Article notes that some small company 401(k) plans can have annual fees & expenses as high as 4.8% of assets.