The True Cost of "Small" Fees

What does a 1% fee cost on a retirement-size portfolio?

On $1 million to $3 million, a 1% fee costs roughly a quarter of the starting balance in direct fees over a 30-year retirement, and leaves the portfolio about 60% smaller at 95 than the same plan without it.

These figures assume a retiree who starts at 65, withdraws 4% of the starting balance in the first year and raises the withdrawal 2.5% a year for inflation, and a portfolio that earns 6% a year before costs with 0.10% in fund expenses. The only difference between the two cases is the advisory fee.

The second column is larger than the first because each fee stops compounding the year it is paid. Our wealth management fee comparison shows the same model at fee levels from 0.25% to 1.5% and what each costs in annual spending.

How much of your return does a 1% fee take?

Roughly 29% of your after-inflation return, if a balanced portfolio earns 6% and inflation runs 2.5%.

A fee is quoted against the balance, but it is paid out of the return. The balance is not what grows your spending power; the return above inflation is. At a 6% nominal return and 2.5% inflation, the real return is about 3.5%. A 1% fee takes one of those three and a half points. Add fund expenses and the fee share rises further. The more conservative the portfolio, the larger the fee's share of what it earns: on an allocation expected to earn 5% with the same inflation, a 1% fee takes 40% of the real return.

This matters more in retirement than before it. Many retirees shift toward bonds and cash as they age, which lowers the expected return while the fee, as a percentage of assets, stays the same.

What does a fee cost a 55-year-old from now to 95?

In our example, a 1% fee costs about $985,000 in fees over 40 years and leaves $3.65 million less at 95. At 1.5%, the portfolio is nearly exhausted by 95.

Consider a hypothetical 55-year-old with $1.5 million invested who adds $30,000 a year until retiring at 65, then withdraws $110,000 in the first year of retirement, rising 2.5% a year. Same 6% gross return and 0.10% fund costs. The withdrawal is the same dollar amount in every row, so the only thing that changes is the fee.

Before retirement the fee costs about $278,000 of balance at 65. The larger cost comes after: the fee keeps running on a portfolio that is now also paying for your life. A plan that looks comfortable with no fee (a 3.6% initial withdrawal rate) becomes a plan with little margin at 1.5%, and a plan with no margin at all if the first years of retirement coincide with a bear market.

How does the fee compare with what you withdraw?

A 1% fee equals a quarter of a 4% withdrawal. On $2 million, that is $20,000 of fee against $80,000 of income.

Put another way, the portfolio is paying out $100,000 a year and you are receiving $80,000 of it. That comparison is often more useful than the percentage, because it is how the money actually feels: a fee the size of a Medicare premium bill for a couple several times over, or a year of a grandchild's college costs, paid every year regardless of what markets do. Our guide to how much you need to retire explains how withdrawal rates are set and why a fee should be counted as part of the withdrawal.

Which fees should you add up?

All of them: the advisory fee, the fund expenses underneath it, and any product or platform charges.

• Advisory fee. A percentage of assets, often tiered so the rate falls on larger balances. It is set out in your advisory agreement and in the adviser's Form ADV Part 2A brochure.
• Fund expense ratios. Charged inside every mutual fund and ETF, on top of the advisory fee. Morningstar put the asset-weighted average for U.S. funds at 0.32% in 2025 (Morningstar, 2026); broad index funds cost a small fraction of that.
• Wrap or platform fees. Some programs add a separate charge for custody, trading or model portfolios.
• Product charges. Variable and indexed annuities can carry mortality and expense charges and rider fees; these are disclosed in the prospectus or contract.

Convert each to dollars at your current balance. The total is the figure to weigh against what the advice is worth to you.

How are advisory fees usually charged?

As a percentage of the assets managed, deducted from the account, usually each quarter, and often on a tiered schedule that lowers the rate on larger balances.

Tiers are worth reading closely, because the headline rate is rarely what a large account pays and rarely what a small one saves. Take a hypothetical schedule of 1.00% on the first $1 million and 0.75% on the next $2 million. On a $2.5 million account the fee is $10,000 plus $11,250, or $21,250 a year: a blended rate of 0.85%. That is lower than 1%, and still more than $200,000 over ten years before counting lost growth.

Check also what the fee is charged on. Some agreements include cash and money-market balances, so the cash reserve you hold for the next few years of withdrawals may be earning less than the fee on it. Some charge on assets the adviser does not manage but "advises on," such as a 401(k) at your employer. The advisory agreement and the Form ADV brochure say which.

How does a fee change what you leave to heirs?

Directly: for many retirees, the balance a fee removes by 95 is most of what would have been inherited.

In the $2 million example above, the portfolio at 95 is about $2.48 million without the fee and $978,000 with it, in future dollars. In today's dollars, at 2.5% inflation, that is roughly $1.18 million against $466,000. If leaving money to children, grandchildren or charity is part of your plan, the fee competes with that goal every year. Our guides on gifting to children and grandchildren and estate planning basics cover the other side of that decision.

What should you do if you pay 1% today?

Find the dollar figure, decide what you are getting for it, and change the arrangement only if the numbers and the service say so.

1. Write down last year's total cost in dollars: advisory fee, fund expenses and product charges.
2. List what the adviser did for it: tax planning, Social Security or pension analysis, rebalancing, estate coordination.
3. Ask whether a lower tier, a flat retainer or an hourly arrangement is available for the same work. Many advisers negotiate with larger clients.
4. If you move, move carefully. Transferring holdings in kind avoids selling; selling appreciated positions in a taxable account can realize capital gains, and some products carry surrender charges.
5. Keep someone in the plan for your spouse or heirs if you manage the money yourself, whether a planner on call or a clear written file.

Paying for advice is a reasonable choice. Paying for it without knowing the price in dollars is the one to avoid.

Can you deduct advisory fees?

Not as an itemized deduction. The IRS lists investment and custodial fees as miscellaneous itemized deductions that are no longer deductible (IRS Publication 529).

In a taxable account, that means a $20,000 fee is paid from money that has already been taxed. How fees charged against IRAs are handled depends on the account and the arrangement; ask your custodian or tax preparer rather than assuming.

When is a percentage fee worth paying?

When the adviser does work you would not do yourself and that work is worth more than the fee in dollars.

Good retirement advice can pay for itself. A well-planned series of Roth conversions before RMDs, a sensible withdrawal order, the right Social Security claiming age and a plan for Medicare's income-related surcharges can each be worth thousands a year. So can having someone in place to manage the money for a spouse who does not want to.

But most of those decisions are made once or a few times. A flat-fee or hourly fee-only planner can do that work for a fixed price that does not grow with your portfolio. Our guide on choosing a fee-only financial advisor covers how to find one and verify their record.