Why fees are the one retirement risk you can actually control

A retirement plan faces several forces working against it. Inflation erodes the buying power of your income. Markets rise and fall on their own schedule. None of us knows exactly how long we will live. These are real risks — but they share one frustrating quality: you cannot control them. You can only respond to them.

Fees are different. Fees are the one major drag on your retirement income that you can see, question and, where appropriate, reduce. That makes them arguably the most important number in your plan that nobody talks about — because the less visible a cost is, the less likely you are ever to challenge it.

The fees hiding inside your retirement product

A typical South African living annuity or retirement annuity carries cost at several distinct levels. Each looks modest on its own. The problem is that they stack — and most people only ever notice the one they were told about.

Four layers, four different parties, four small percentages. Quoted separately, none alarms anyone. Added together and compounded over a long retirement, they become one of the largest controllable costs you carry.

EAC — the one figure that shows your true cost

Because the cost is fragmented, the South African industry created a standard to pull it back together. The Effective Annual Cost, or EAC, is a disclosure standard developed under ASISA. It expresses your total charges as a single, comparable annualised percentage, so two products can finally be measured on a like-for-like basis.

What the EAC measures

The EAC brings together four components — investment management charges, advice charges, administration charges, and other charges — and shows them over different holding periods, typically one, three, five and ten years. The multi-period view matters because some costs, such as early-termination charges, look different depending on how long you stay invested.

TER and EAC are not the same

This is the single most common point of confusion. The TER captures only the fund layer. The EAC is broader: it adds advice, administration and other charges on top. An investor comparing one TER against another may be comparing only a fraction of the real cost. Your EAC is your total. It is the number to ask for.

How to request and read yours

You are entitled to your EAC, and ASISA members are required to be able to supply it on request. Ask your provider or adviser for it in writing. Read across the table to see each charge component, and read down the columns to see how the total shifts over time. The goal is a single, honest percentage you can benchmark against alternatives.

What fees actually do to your money over time

Compounding is usually described as the investor's best friend. The uncomfortable truth is that fees compound too — through the same mathematics, in the opposite direction. Every rand removed in fees is a rand that can no longer grow, and the growth it would have produced is lost along with it.

A percentage that sounds small is not small

One percent does not feel like much. But one percent of a R5 million portfolio is R50,000 a year — every year — whether the market rises or falls. Because the fee is a percentage of your balance, it is also a growing rand amount as your pot grows. The number you wave away as trivial quietly scales up alongside your savings.

An illustration over a long horizon

Consider a simple, hypothetical example. Imagine R1 million left to grow for 20 years. At an assumed growth rate of 9% a year, it would reach roughly R5.6 million. If one extra percentage point in fees reduced that growth to 8% a year, it would reach roughly R4.7 million instead — a gap of close to R900,000, created by a single percentage point.

This is an illustration only. It assumes a constant return that no investment can promise, and it ignores tax, income drawn and market volatility. Actual returns vary, and the value of investments can rise or fall. The point is the mechanism, not the precise figure: a small recurring fee difference compounds into a large amount over a long horizon.

Why fees hit retirees harder than savers

During your working years, fees are a drag on growth. In retirement, the picture changes in an important way. You are no longer adding money — you are drawing it. That single shift makes fees bite harder.

Fees come straight off your capital

When you are contributing, new money cushions the cost. When you are withdrawing, there is no new money to soften the blow. Fees are effectively drawn from the same capital that funds your income — so every rand in fees is a rand that is no longer working to support the years ahead. This is also why fees directly affect how long your living annuity will last.

The fee, drawdown and inflation squeeze

Fees rarely act alone. If you draw 5% of your capital as income and pay 2% in total fees, your portfolio must really fund closer to 7% each year. Inflation then requires your income to rise over time simply to hold its value. Each force is survivable on its own. Together, in a poor sequence of returns, they can accelerate capital depletion and bring forward the point of ruin — the moment a portfolio can no longer recover.

How to tell whether your fees are reasonable

There is no single correct figure, and anyone who quotes one without seeing your circumstances is guessing. The better questions are whether you can see your total cost clearly, whether each layer is reasonable for what it delivers, and whether you are actually receiving the service you pay for.

The value question. The aim is not the lowest sticker price — it is the best outcome after fees. A fair fee for genuine ongoing advice, tax efficiency and behavioural coaching can be worth every cent. The real failure is not a high fee. It is a fee that buys nothing, or one you never knew you were paying.

How to reduce what you pay without losing what matters

Lowering your costs is rarely about chasing the cheapest option. It is about paying only for what genuinely adds value. A calm, ordered approach works best.

1. Know your number first. Request your EAC and see your true total before changing anything. You cannot manage a cost you have not measured.
2. Simplify and consolidate where it makes sense. Scattered products can mean duplicated platform and admin layers. Sometimes consolidation lowers cost — though only where it does not sacrifice something you value.
3. Match the fee to the value. Be honest about what your advice fee buys. If it funds real, ongoing work, it may be worth it. If it funds nothing, that is the layer to question first.
4. Review regularly. Fees are not "set and forget". Products age, alternatives change, and your needs evolve. A periodic review keeps the cost honest.

Switching is sometimes the right answer and sometimes not. A move can trigger its own costs, and a lower headline fee is poor value if it comes with weaker service or an exit penalty. The aim is an informed decision, made calmly — not a reflex.

From the adviser's chair

What I see in practice

In practice, the gap between what clients believe they pay and what they actually pay is one of the most common surprises in a retirement review. Many have never seen their full EAC. A great number know about the fund fee but have never been told there were three more layers beneath it. Some are genuinely convinced they pay nothing at all.

The most uncomfortable cases are not the high fees — they are the ongoing advice fees that have quietly continued for years while the advice has not. That is the layer worth examining first. The reassuring part is that once a fee is visible, it stops being a mystery and becomes a decision you can actually make.

Where this fits in your wider retirement plan

Fees are one lever among several. They sit alongside your drawdown rate and your response to inflation as the forces that together decide whether your capital outlives you or you outlive it. Looking at any one in isolation understates the risk. Reading your fees, setting a safe drawdown rate, and planning for inflation together is what turns a collection of products into an actual plan.

Key takeaways

• Fees are the one major retirement drag you can actually see, question and control.
• A South African retirement portfolio usually carries four layers: advice, administration, investment, and transaction costs.
• The Effective Annual Cost (EAC) brings those layers into one comparable number — and is broader than the TER.
• Fees compound against you, and a percentage that sounds small becomes a large rand amount over time.
• Fees hit retirees harder because, in drawdown, they come straight off the capital funding your income.
• The goal is the best net-of-fee outcome — not the lowest price. Request your EAC and review it regularly.

Frequently asked questions

In closing

Fees are not the enemy. Invisibility is. Once you can see your full Effective Annual Cost, broken into its layers, the conversation changes from a vague worry about shrinking capital to a clear, answerable question: is each rand I pay buying me something worthwhile? That is a question worth asking calmly, before any pressure forces the decision — and one an honest, evidence-based review is built to answer.

About AS Brokers

AS Brokers helps South African retirees, business owners and families make better long-term financial decisions through retirement planning, investments, risk management, estate planning and business assurance. Our focus is on decisions and principles, not products — because informed decisions create better outcomes over time.

This article is educational content and does not constitute personalised financial advice. It does not account for your individual circumstances. Figures shown are illustrative only and are not guarantees of future performance; the value of investments can rise or fall. Before making any decision, speak to an AS Brokers adviser for a review based on your specific situation.