Keep an eye on shelter expenses

Q. Sometime ago your column gave information about what it costs to maintain a home -- it was a percent of the value of the home and included utilities, insurance, taxes, etc. Do you still have that information? It might help many home buyers in today's market. -- C.H., by e-mail

A. The cost of owning a home, excluding any financing expenses, tends to run between 4 percent and 6 percent a year of the current market value of the home. That's a very rough rule of thumb. It varies a great deal from one region to another. You can get a sense of the variation between locations by picking up a copy of a magazine like "Where to Retire," which regularly shows housing and tax costs in different locations. Lots of readers will be happy to tell us that they pay much more, or much less, depending on where they live.

Real estate taxes, one of the largest costs of ownership, can vary from less than one-half of 1 percent to well over 2 percent. Houses in depressed areas, for instance, tend to have very high taxes relative to market value. Houses in affluent resort areas, on the other hand, tend to have very low taxes as a percent of market value.

Insurance costs also vary a great deal, as any resident of Florida can tell you.

And utility costs also cover quite a range both in the actual cost of electricity, gas and water and the amount you need to use to keep your house comfortable and your grass green.

One reason we should all pay attention to these costs is that they are a major part of your retirement expenses. If you buy a large and expensive house, you're likely to need a "support fund" for the house that is equal to the value of the house when you can no longer work. That's also why moving to a low-cost area and downsizing are such powerful levers for retirement planning. It's also why so many seniors are "house poor" -- their house, even though it is paid for, consumes much of their investment and/or pension income.

Q. Are the charges paid to financial advisers tax-deductible? Do I ask the adviser what his fees are each year? It seems to be a question that few advisers are willing to answer. -- R.L., Richmond, Texas

A. Fees paid to a financial adviser are tax-deductible. That's the good news. Unfortunately, they are deducted under the category "Miscellaneous." Only the amount of these deductions that exceeds 2 percent of your adjusted gross income can be deducted. So it is highly unlikely that most people would actually be able to take the deduction.

If the adviser is a registered investment adviser, the firm will have a fee schedule. (This only means that he or she is registered with the Securities and Exchange Commission. It is not to be construed as a seal of approval.) You can also ask for the firm's form ADV, which discloses its fee schedule and sources of income.

Most institutions have a fairly straightforward fee schedule. You should ask for it and get a complete explanation of when and how you will be charged directly. Sadly, this isn't always enough information because brokerage firms may also accept placement fees from the mutual funds they use to build client portfolios. That placement fee, in turn, is built into the expense ratio of the underlying funds.

One of the reasons I have a limited tolerance for insurance products is that the industry is devoted to obfuscation and mislabeling when it comes to fees and how it makes its money. One curious reader asked his "adviser" what his variable annuity expenses were. He reported that the adviser told him he "wasn't allowed" to divulge such information!

For larger accounts (generally over $1 million), adviser fees typically run about 1 percent of assets a year. Smaller accounts can face fees of 1 percent to 2 percent a year. If the money is then invested in mutual funds, which have their own annual expenses, the total burden on your money will be very difficult to overcome.

© 2008, Universal Press Syndicate