Annuity Fees

Shawn Plummer

CEO, The Annuity Expert

Annuity fees are charges for the cost of various bells and whistles in annuity contracts. First, we’ll go over what to expect in different types of annuities and compare each type.

This guide will answer the following common questions:

  • Do fixed annuities have fees?
  • What are the average variable annuity fees?
  • Do annuities have high fees?

Annuity Fees At A Glance

Variable
Annuity
Fixed Index
Annuity
Fixed
Annuity
Immediate
Annuity
Deferred
Income
Annuity
Principal ProtectionNoYesYesYesYes
Access To PrincipalYesYesYesNoNo
Control Over MoneyYesYesYesNoNo
Tax-Deferred GrowthYesYesYesNoNo
Guaranteed GrowthNoYesYesNoNo
Guaranteed IncomeYesYesYesYesYes
Inflation ProtectionYesYesNoYesYes
Death BenefitYesYesYesYes/NoYes/No
Long-Term Care HelpYesYesYesNoNo
Annual Fees2% – 4%0% – 1%0%0%0%

Typical Annuity Fees and Expenses

Immediate Annuity Fees

Typically there aren’t any traditional fees affiliated with an income annuity, but an immediate annuity owner will take a reduction in an income distribution amount (paycheck) the more favorable the payout to you.

Deferred Income Annuity Fees

Typically there aren’t any fees affiliated with Longevity Annuities, but an annuity owner will reduce an income distribution amount (paycheck) the more favorable the payout to you.

Fixed Annuity Fees

With Fixed Annuity contracts, fees can come in the form of an interest rate reduction.

Fixed Index Annuity Fees

Annuity Rider Fees

With most fixed index annuities, annuity owners will pay for an optional feature such as an income rider, enhanced death benefits, or higher caps and participation rates. Fees can cost up to 1.75% of the account value annually, depending on your benefit.

For example, annuity companies offer an optional upsell to pay for more upside potential in your contract instead of the standard non-fee option.

Be aware of the fees in fixed index annuities as some riders or benefits are “built-in,” which requires the annuity owner to pay an annual fee, regardless if they want the rider/benefit or not.

Variable Annuity Fees

Variable annuities are a different beast in terms of cost and can get quite expensive. First, of course, you’ll pay higher fees with variable products, but that’s because they are investment products, not insurance products. Below is the list of standard investment management fees you’ll pay for in a deferred variable annuity investment.

  • Mortality Expenses (M&E): M&E provides death benefits to your heirs. Investment fees can cost up to 1.5% of the account value annually.
  • Administrative Fees: This is a service fee for your retirement account. You can expect to pay up to .30% of the account value annually.
  • Investment Expense Ratio: An investment advisory fee for choosing various investment choices (stock and bond) called sub-accounts. Annuity owners can expect to pay up to 2% of the total value annually.
  • Guaranteed Lifetime Withdrawal Benefit: An income rider (Guaranteed Lifetime Withdrawal Benefit) fee similar to an index annuity’s income rider. Annuity owners can expect to pay up to 1% of the account value annually.
  • Enhanced Death Benefit Riders: An optional estate planning rider to protect the annuity owner’s beneficiaries’ investment. The cost can be up to .50% of the account value annually.

Long Term Care Annuity Fees

Long Term Care Annuities charge the cost of insurance (similar to life insurance) for their fees based on age, health rating, and how many lives you’re covering. Sometimes there are additional bells and whistles you can purchase that will increase the cost. Insurance charges come out of the account value annually.

Surrender Charges

Some would say that surrender charges are fees, but the reality is they are penalties. I’ve read how these charges are spun as “hidden fees” when in reality, there’s nothing hidden about them at all.

Deferred annuity contracts have surrender fees, while the single-premium immediate annuity does not because there is no cash value to surrender.

Fees Vs. Spreads

  • Spreads: A spread is the percentage of gains the insurance company pockets first before distributing interest to the annuity’s account. Typically, you will not lose money in a negative environment.
  • Fees: Fees in annuities is a charge that deducts from your account in both a positive or negative environment. You can lose money in a negative environment.

Conclusion

Fees vary dramatically in each annuity type. However, here is a list of annuities that provide benefits at no additional cost.

Annuity carriers have done a great job informing the buyer about all features of their product. The days of “hidden fees” are long gone. Frankly, the annuity insurance company doesn’t want to deal with the liability.

If you need to find all the fees within your contract, you can check your annuity prospectus, which comes with every purchase. You’ll find all the fine print in there.

Deferred Income Annuities (DIA) and Single Premium Immediate Annuities (SPIA) almost always have no traditional fees.  Annuity companies reduce your income payments instead.

Fixed Annuities often charge in the form of an interest rate reduction, if any at all.

Fixed Indexed Annuities traditionally charge around 1% of your account value annually if an optional rider/benefit is chosen.

Variable Annuities charge anywhere between 3% to 4% of your account value annually, which typically includes investment advice and management and optional fees.

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Shawn Plummer

CEO, The Annuity Expert

I’ve sold annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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