At 0.05% a year, index funds beat a financial advisor on investment cost alone, so Ritholtz Wealth Management judges the fee by what it adds to tax and withdrawal decisions.
Take a retiree who runs her own three-fund portfolio: on $2.3M, her funds cost about $1,150 a year, while a 1% fee is $23K.
Picture the first January without a paycheck. Your total-market, international, and bond funds are still doing their quiet jobs, but now the money has to arrive in checking each month. Selling the same amount from the same account every month can look tidy in a spreadsheet and create a larger tax bill than necessary.
Ritholtz Wealth Management wrote this for engineers and analytically minded do-it-yourself investors who want to test the value of advice before retirement. The question is not whether an advisor can pick a better fund. It is whether someone can improve the order, size, and timing of withdrawals enough to justify the added cost.
By Marcus Thompson, CFA — Wealth Manager | Reviewed by Hiroshi Tanaka, CFPMarcus builds diversified portfolios for high-net-worth clients, with deep expertise in asset allocation and risk management.
At 64, the three-fund portfolio has already done its job
A total-market, international, and bond index mix at about 0.05% costs $1,150 a year on $2.3M ($2.3M × 0.0005). An engineer who has rebalanced that mix for 25 years has already handled the investment part well, and Ritholtz Wealth Management would not disturb a lineup that works. Once paychecks stop, the unanswered questions are which account funds each monthly transfer and what that sale does to taxable income. The funds do not answer those questions.
How much does a late start cost? Olga at 64, 66, and 69
“I’ll sort out withdrawals when RMDs start.” That approach leaves less time to spread traditional IRA withdrawals, because IRS required minimum distributions begin at age 75 for people born in 1960 or later. A retiree who wants to reduce pre-tax money before then should divide the amount by the years remaining, then compare the annual result with Medicare’s IRMAA income line before deciding how long to wait.
For illustration: Olga is a hypothetical 64-year-old widowed software architect with a paid-off house and a $2.3M three-fund portfolio she has managed for 25 years. She wants about $660K moved out of her traditional IRA in measured slices before RMDs start, assumes no growth and no other taxable income, and has 11 years from age 64 through age 74. $660K ÷ 11 = $60K a year. Waiting until age 66 leaves nine years, so $660K ÷ 9 is about $73K a year. Waiting until age 69 leaves six years, and $660K ÷ 6 = $110K a year.
At age 69, that $110K crosses the 2026 single IRMAA line of $109K. Medicare uses modified adjusted gross income from two years earlier, so income at 69 sets Olga’s Part B premium at 71. Under 2026 Medicare figures, her monthly Part B premium rises from $202.90 to $284.10, or $81.20 more a month, about $974 a year. The calculator on this site can help you run the same division with your own IRA balance and years remaining.
The years shrink faster than the IRA balance
Put the fee beside the tax decision
Shortcut: divide the pre-tax IRA money you want out before RMD age by the years left. If it exceeds your 2026 IRMAA line, $109K single or $218K joint, get the withdrawal schedule reviewed.
| Decision | Common belief | What the rule says | What it means for you |
|---|---|---|---|
| Investments | Index funds are the whole job | Fund costs come out of returns | 0.05% on $2.3M is about $1,150 |
| Withdrawal order | Spend taxable first, IRA last | RMDs start at 75 if born 1960+ | Waiting bunches IRA income later |
| Medicare premium | Retirement income stays low | IRMAA uses MAGI from two years earlier | Income at 63 sets premium at 65 |
| Advisor fee | A fee buys better returns | Fees reduce returns dollar for dollar | 1% on $2.3M is $23K a year |
The first withdrawal year: DIY, a one-time review, or ongoing advice
The first withdrawal year is where a DIY investor can compare advice honestly: keep running the portfolio, buy a limited review, or pay an ongoing percentage fee. The fund expense is about $1,150 a year for Olga, a one-time review is a single bill, and a 1% ongoing fee equals $23K a year on $2.3M. Ritholtz Wealth Management discusses its fee in the first conversation and confirms it in writing before work begins.
DIY leaves Olga setting the withdrawal order and checking her own projected income each fall. A one-time review can test that order, check the IRS RMD timing, and identify the next few tax decisions without taking over routine rebalancing. Ongoing advice means someone revisits the schedule, but it has to change enough decisions to earn its cost. One avoided $974 Medicare surcharge does not pay a $23K fee.
Ask for a dollar answer, not a sales pitch. A CPA can explain which lines on your return feed the Medicare MAGI calculation and whether sales belong on IRS Form 8949. An advisor should name the decision they would change in the next 12 months and put an estimated dollar value beside it. The IRA custodian can tell you whose name is on the beneficiary form today.
Ongoing advice earns its keep in years when a withdrawal schedule needs real work. For a retiree whose spending is covered, whose accounts are simple, and whose schedule is already written down, it can repeat work she can do in an afternoon. A Second-opinion plan review may be enough when the issue is one narrow decision.
Put the same $2.3M against each option
Ask for the decision behind the fee
- CPA: Which lines of my return count toward Medicare MAGI?
- Advisor: Which next-12-month choice would you change, and by how much?
- IRA custodian: Whose name appears on my beneficiary form today?
Widowed, inherited, or concentrated: where simple index advice stops fitting
“Buy index funds and stay the course” assumes a plain situation. It fits less well for a survivor who now files as single, where the 2026 IRMAA line drops from $218K joint to $109K single on the same income; for someone with more than a fifth of net worth in one employer stock; for an inherited IRA under the 10-year rule; or for a pension lump-sum offer. Olga falls into the first group, which is why her withdrawal order matters more than another fund comparison.
From 65 to 75, run the account checklist at the kitchen table
Between age 65 and age 75, the useful work is less glamorous than fund selection. Put every account on one sheet, then compare the pre-tax IRA balance with taxable money and count the years until RMD age. Pull last year’s tax paperwork before guessing at MAGI. Medicare premiums are based on an earlier return, so the income decision can be old news by the time the bill arrives.
An IRA beneficiary form that still names a spouse who has died can send the account to the custodian's default, often the estate. That can mean probate and, if the owner dies before her required beginning date, a five-year payout instead of the 10-year window children could have had as named beneficiaries. Fixing it now takes one custodian form. Once the owner has died, nobody can change it.
At home, an adult child often raises this after a parent’s health scare. The practical question is who could run Olga’s Sunday spreadsheet if she could not. A short account list, logins stored in a password manager, and a written withdrawal schedule settle most of the issue. Check the beneficiary form described here while you are at it, because it is paperwork no spreadsheet can repair later.
A retiree whose pension and Social Security already cover spending, and who has a small IRA, may get little from paid advice beyond a single review. This arithmetic also ignores investment growth, dividends, and other income, while IRMAA tiers change each year. Every investment can lose value, including the money you originally invested.
Five checks before the next withdrawal
The person who can find the spreadsheet
A beneficiary designation can override your will. Review each IRA form after a death, divorce, or major family change.
- IRA versus taxable balance: Identify the share that is pre-tax.
- Years until RMD age: Count every year before age 75.
- Last year’s MAGI: Compare it with your IRMAA line.
- Beneficiary forms: Check each IRA and each TOD brokerage form.
- Cash reserve: Count months of spending held outside stocks.
Questions to ask before hiring an index funds vs. a financial advisor
What happens if I keep running my three-fund portfolio myself and only pay for help with the withdrawal schedule?
You can keep choosing low-cost funds and doing your own rebalancing while asking for a limited review of account withdrawals, taxes, Medicare income thresholds, and beneficiary paperwork. That setup makes sense when the portfolio is simple but the years before age 75 create a concentrated tax decision.
Can an advisor’s 1% fee ever make sense next to a 0.05% index fund once costs are counted?
A 1% fee on $2.3M is $23K a year, compared with about $1,150 in 0.05% fund expenses. It can make sense only if the advisor changes several costly decisions, such as a withdrawal schedule, concentrated-stock sale, or estate paperwork issue. Better fund picks alone are not a convincing case.
My mother, 64, manages her own $2.3M portfolio; what should I ask her to write down for the family?
Ask her to list each account, its custodian, beneficiary names, the monthly withdrawal source, and where passwords are stored. Include the traditional IRA balance and years until age 75. The useful family record is short enough to find on a hard day and specific enough for someone else to pay bills.
Keep the fund work, review the withdrawal calendar
Fund selection, rebalancing, and cost control can stay with the reader who already handles them well. What deserves a second look from Ritholtz Wealth Management is the schedule of IRA withdrawals against RMD age and IRMAA lines. A mistake there shows up on a Medicare bill two years later and can recur every year after. Retirement income planning is where that calendar belongs.
The fund lineup may be solved; the withdrawal calendar usually is not.
Sources
This article provides general information only and is not individualized investment, tax or legal advice. Investing involves risk, including the possible loss of principal. Talk to a qualified professional about your specific situation before making any financial moves.