Investment fees could leave you old and broke

You want to save as much as possible for retirement. The financial services industry wants to make as much money off you as it can. That thorny conflict is at the heart of the battle over what is known as the “fiduciary rule.”

You want to save as much as possible for retirement. The financial services industry wants to make as much money off you as it can.

That thorny conflict is at the heart of the battle over what is known as the “fiduciary rule.” If implemented, it would require financial advisers to put clients’ best interests first when counseling them about retirement savings. In practice, it typically would prevent financial pros from steering you into a high-cost investment if similar low-cost choices are available.

The differences in fees — often fractions of a percent — may sound minuscule.

Over time, though, higher fees can dramatically reduce the amount of money that investors accumulate for retirement, according to the Securities and Exchange Commission and other investor watchdogs, and significantly increase the chances that savers will run out of money late in life.

Here’s an example from the Big Picture app, which helps financial advisers test investment strategies for retirement plans with historical market-performance data and inflation rates.

Assume you have a portfolio that’s divided equally between stocks and bonds, with the goal to sustain a 30-year retirement. You plan to withdraw 4 percent the first year and increase that withdrawal by the inflation rate each following year. (This “4 percent rule” is widely used in financial planning to minimize the chances that savers will run out of money in retirement.)

You’ll pay fees at every step. Mutual funds charge fees. Brokers who buy stocks and bonds on your behalf charge fees. Finan- cial advisers charge fees. Those costs can dramatically affect your odds of success.

Based on Big Picture’s data, the chances you’ll run out of money in retirement are:

•9 percent if the annual cost of your investments is 0.5 percent

•17 percent if your cost is 1 percent

•29 percent if your cost is 2 percent

•50 percent if your cost is 2.5 percent

“High fees can cut safe spending in retirement by hundreds of dollars a month for the average retiree, take years off a portfolio’s life or leave retirees with much less in legacy capital,” said Ryan McLean , founder of Los Altos, California-based Investments Illustrated, which created the Big Picture app. “I don’t think investors have been adequately informed on these effects.”