Different types of annuities come with different types of fees. Generally speaking, there are one-time fees and ongoing fees. The ones that you really want to be aware of are the ongoing fees. Those fees may be set up to automatically to take money out your account on a regular, recurring basis, sometimes for the rest of your life.
The one type of annuity that has the highest fees is also the one type of annuity typically sold by brokers. Because variable annuities are complex products, they often offer higher commissions to brokers than other types of securities such as mutual funds. Here is what you need to know about the three types of ongoing fees in an annuity that might be doing as much (if not more!) to fund the retirement of someone else.
#1: Commission fees that reoccur.
A commission is a service fee that is paid to a financial professional. Some commissions are charged for investment advice or the management of an account, others commission fees are charged whenever a security—such as a mutual fund or a variable annuity—is bought or sold. Most major, full-service brokerages rely on commissions, and the brokers who work there are often motivated by the benefits that commissions provide. This might prevent them from giving you unbiased advice. The commissions on annuities can range from 1 to 8 percent, with variable annuities offering some of the highest commissions in the industry. Generally speaking, the longer the surrender period, the higher the commission. Selling annuities may also create a continuous stream of income for a broker because some types of variable annuities pay out a commission on every future dollar contributed. Bottom line: People buy annuities in order to get themselves a retirement income, but in some cases, they may be funding the retirement income of their broker. What to do: Have your annuity tested by an independent financial professional can help you understand if you are paying more than you should in fees.#2: Ongoing Fees for services that you don’t even need.
Deferred annuities are often sold with riders that can guarantee a higher rate of return on income or growth accounts. Riders can go by different names—such as a Guaranteed Minimum Withdrawal Benefit (GMWB) rider—and their fees can range from 1 to 2 percent. While 1 to 2 percent might not sound like much, with most deferred annuities, this fee is deducted from your account every year even after the growth guarantee expires. Even if your account loses money, even if you aren’t taking the income, and even once you do start taking the income, this fee comes out of your account for the life of the annuity. This might be worth it to you if those guarantees give you peace of mind, but if you don’t need the income or don’t even know you’re paying for this feature, then you might want to reassess. Bottom Line: The fee for rider benefits may be assessed every year for the life of the account even after the guaranteed growth period ends. What to do: There are cheaper ways to guarantee an income for life. To talk to a retirement income specialist about your other options, fill out our simple form. (And in case you’re wondering, there is NO FEE for filling out this form!)#3: Ongoing fees that hold your money hostage.
A surrender fee is a fee assessed on your money in order to get out of an annuity. Insurance companies charge surrender fees because, in order to give you a predictable income, they are looking to invest the money for the long-term. Long-term investments typically give investors more stable rates of return and insurance companies like that. When you take your money out of the annuity, you break that long-term contract. Surrender periods typically last six to eight years, but some may last as long as 10 years. The surrender fees can be anywhere from 1 to 10 percent, and the charge may apply to any withdrawals taken out of the account during the surrender period. There are also annuities that basically start the surrender period over again any time you deposit more money into the account. With these annuities, the surrender fee is based on how long each contribution has been in the contract. If you are still adding money to your accounts because you’re saving for retirement, then this type of annuity may not be in your best interest. Bottom Line: Be sure you understand the terms of the surrender charges before you buy an annuity. What to do: Ask your broker these three questions:- How long is the surrender period on this annuity?
- What is the surrender fee if I want to move my money out of the annuity?
- Is there a withdrawal charge or surrender fee based on how long each contribution has been in the contract?
Gerald N. Wiggins
Hi:
Your info on perpetual fees for variable annuities was a real education for me.
My broker pushes a variable annuity “jackson Perspective II”annuity. Can you
tell me what fees are for that annuity?
Jerry Wiggins
Annuity Gator
Hi Jerry – Thank you for your message. It is true that variable annuities are known for their fees. In this case, the annuity’s total annual operating expenses can range from 0.53% up to 2.22%. You can find a complete breakdown of the Jackson Perspective ii expenses in the prospectus, which can be downloaded by copying and pasting the following link into your browser: http://www.jackson.com/static/jwp/pdf/legal/jmv16966.pdf.
For additional information on this annuity, you can download a number of different reports and disclosure documentation from this page: http://www.jackson.com/products/variable-annuities/perspective-ii/disclosure-documentation.xhtml.
Please let us know if we can answer any additional questions. We can be reached directly by calling (888) 440-2468. Or, you can email us via our secure online contact form at: http://annuitygator.com/contact/. Best! Annuity Gator
Pat
I have annuities with American Equities,got thru a broker. Is this a good company? I invested a bit of money and now I am wondering if this was the right company. What do you know of this company ? Thank you
Annuity Gator
Hi Pat –
Thank you for your question. American Equity (American Equity Investment Life Insurance Company) actually has a long, stable history in the insurance and annuity arena. It’s also highly rated, with an A- (Excellent) from A.M. Best, and an A from Standard & Poor’s.
The company focuses on fixed and fixed index annuities – and it doesn’t sell variable products, as they are quite a bit more risky. The actual annuity that you have from American Equity (or any company) should ideally be matched with your specific situation, in terms of risk tolerance and time frame, as well as when you want your income to start.
We would be happy to run an analysis of your current annuity and see if it is a good fit. We’d need to get some additional information from you, though, in order to do so. This is best done via phone (as versus sending sensitive information back and forth via email).
Please feel free to reach out to us directly, toll-free, at (888) 440-2468. We look forward to chatting with you. Best! Annuity Gator