Q. I have been reading your articles regarding management fees and withdrawal rates. I am 62 years old, retired, and have my money with a brokerage house. They charge about 2 percent to manage a $1.2 million IRA portfolio of about 50 percent stock funds and 50 percent bonds, etc. Our withdrawal rate is 6 percent a year.

The real withdrawal rate, however, is about 8 percent (6 percent plus 2 percent management fees). Following your advice I checked the impact using the online withdrawal calculator you mentioned.   At this withdrawal rate there is no way our money is going to last 30 years. They insist that their fees are competitive and will not be a burden once the market recovers. We have a problem!

I would like to follow your advice and reduce our financial service fee to 1 percent or less. I'm considering a fee-only certified financial advisor. How do I get out of this brokerage house?

  ---D.W., by e-mail from Houston, TX

  

A. A "competitive" fee doesn't mean it is compatible with the long-term survival of your nest egg. The casinos in Las Vegas are all competitive, but most people are still broke when they leave. Basically, the firm is giving you a choice: you can be prudent and seek a reasonably priced alternative or you can contribute to their Mercedes Payment fund. Here are the actions you can take:

•           Interview a number of financial advisors who are not associated with a brokerage house. You will find they are flexible on fees, particularly when half your money is in fixed income instruments. Remember, even 1 percent a year is $12,000 on a $1.2 million account. Not chicken feed. The advisor will help you handle the paperwork of transferring the account.

•          If you don't have an advisor yet but want to move, you can move to one of the major advisor "platform" firms such as Fidelity or Schwab. Again, the firm will oversee movement of the account. Having done that, you might simply choose to start by putting the bulk of your money in Dodge and Cox Balanced fund. A small commission will be charged for the transaction but you'll get superior management at an annual cost of 0.53 percent. This fund has been in the top 10 percent of balanced funds over the last 3, 5, 10, 15, and 20 years. Over the last 20 years it has actually done better than the S&P 500 Index in spite of its 40 percent commitment to fixed income.

•           You can avoid any impediments to moving the account by giving your account an inspection. If the account contains unit trusts created by the broker give instructions to liquidate them because they may have to be liquidated before transfer. Avoid having all holdings liquidated because the brokerage house may charge you a commission for doing so. If possible, leave as many of the holdings as possible for transfer and let your new advisor decide what to sell. The transaction cost will probably be a good deal lower.

•           Remember there are alternatives inside the brokerage community that will reduce fees and probably provide superior long-term results. You could, for instance, direct your brokerage house to invest every dime of your IRA account in the American Funds American Balanced Fund A shares, for instance. This fund has a 5.75 percent front-end load but the load is waived for sales over $1 million. The fund has an expense ratio of 0.68 percent a year and has been in the top 10 percent of balanced funds over the last 3, 5, 10, 15, and 20 years, according to Morningstar. Over the last 20 years it has trailed the S&P 500 by only 50 basis points (1/2 of 1 percent a year) in spite of having far less risk. The reason your broker didn't offer this alternative is that it produced very little income for his firm. Another broker will be happy to sell you this fund.

Good luck.

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