The concept that grabbed me is one I had not thought about until I read it here!
If you have a WR of 4%, and a fee of 1%, the fee is taking 20% or 25% of your yearly income..
Or consider it from the portfolio angle with constant income to you - say you had saved up $1,000,000 and felt comfortable with a 4% WR, providing you with $40,000.
If the FA is charging 1%, you are now withdrawing $50,000. To maintain the same 4% WR, you need $1,250,000.
The FA just charged you $250,000!
And how long would it take someone to grow their portfolio from $1,000,000 to $1,250,000? Could be a long time, depending.
Not exactly, the 1% doesn't increase with inflation, and decreases if your portfolio drops (and the fees contribute to that drop!), so actual success rates aren't impacted as much as it seems at first glance - but it's still a lot of dough.
Do people really think they will screw up a lazy portfolio so bad that they will need to drop their income withdraws by 25%? I just don't see it.
EDIT/ADD: OK, ran it in FIRECalc, asking for 100% success on initial $40,000 withdraw. With default 0.18% expenses, starting portfolio must be $1,234,804. Adding 1% fee to that, 1.18% expenses, an additional $198,727 is required at the start.
-ERD50