Annuity Fees: What You Need to Know

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Typical Annuity Fees

The cost of an annuity can vary greatly depending on the type of annuity you choose: fixed, variable, or indexed. However, there are typical annuity fees you can expect to encounter. These can include:

Insurance Charges

These charges are essentially for the cost of insurance benefits and can range between 1.25% to 1.60% annually.

Investment Management Fees

For variable annuities, you might pay fees for managing the sub-accounts where your money is invested. These annuity fees can range from 0.5% to 2% annually.

Surrender Charges

You could face a surrender charge if you withdraw money from your annuity before a specified period, usually within the first seven to ten years. This fee can start at 10% or more and typically declines over time.

Annuity Fee And Expenses

What is a Rider Fee on an Annuity?

An annuity rider fee is an additional cost for optional features to add to your annuity contract. For example, these riders can provide guaranteed minimum income, death benefits, or long-term care coverage. The cost of riders can vary but often range from 0.1% to 1% annually.

How are Commissions Paid on Annuities?

The insurance company typically pays the selling agent or broker commissions on annuities. These commissions can range from 1% to 7% of your initial investment, depending on the type and complexity of the annuity. It’s important to note that while commissions don’t come directly out of your pocket, they could impact your annuity’s overall cost and performance.

Commissions Vs. Management Fees

Financial Advisors and annuity agents can be compensated for the sale by either a commission or a management fee. The critical difference is commissions are paid by the insurance company (not the consumer), and management fees are paid by the investor (the consumer).

  • For example, a $100,000 annuity with a 7% commission would equate to a $7,000 commission paid to the advisor or agent by the annuity company.
  • On the other hand, a $100,000 annuity with a 1% management would equate to a $1,000 annual fee paid to the advisor by the investor.

The commission is typically paid upfront and one time, while the management fee is paid yearly with the financial advisor. Over 10 years, the investor would pay zero out-of-pocket costs through a commission-based sale while paying 10% out of their own pockets with management fees.

Helpful Tip: The Annuity Expert is compensated through commission. We do not charge fees for our services.

Fixed Annuity Fees and Expenses

Fixed annuities offer a guaranteed rate of return. As a result, the fees associated with fixed annuities are generally lower than those for variable annuities. These may include insurance and potential surrender charges, but they typically do not have investment management fees because the return is guaranteed.

No Fee Annuity

“No fee” annuities are a type of annuity that has no annual fees, surrender charges, or investment management fees. However, while the term “no fee” may sound attractive, it’s essential to be aware that these annuities often come with other costs or lower returns to compensate for the lack of fees.

Variable Annuity Fees

Variable annuities allow you to choose from a variety of investment options. However, they typically have the highest fees among annuities, including insurance charges, investment management fees, and potentially rider and surrender charges.

Lowest Fees

The lowest fees on annuities are typically found on immediate and deferred income annuities and fixed annuities. These often have fewer charges and lower overall fees than variable annuities. However, it’s essential to consider your circumstances and financial goals when choosing an annuity.

Why Seniors Need to Understand Annuity Fees

Seniors need to understand annuity fees because they can significantly impact their investment’s value over time. Higher annuity fees can eat into your returns, potentially leaving you with less income in retirement. Additionally, specific annuity fees like surrender charges can limit flexibility if you need to access your money earlier than planned.

Charges And Fees On Annuities

Annuity Cost Per Month

The cost of an annuity per month isn’t a straightforward calculation because it depends on numerous factors, including the type of annuity, the amount of your initial investment, your age at the time of purchase, and the specific terms of your contract. However, here’s a simple way to think about it:

Let’s say you purchase an immediate annuity for $100,000 at a 5% annual payout rate. In this case, you could expect to receive roughly $416 monthly. However, the actual amount could be higher or lower depending on the abovementioned factors.

Annuity 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%

Next Steps

Navigating the waters of annuity fees can be complex, but with the proper knowledge and resources, it doesn’t have to be. Understanding the different types of annuity fees and how they impact your investment is critical to making informed decisions that align with your financial goals. Remember, an annuity is a long-term commitment, and its associated fees can significantly impact your retirement income.

We’ve explored the typical annuity fees, discussed the specific fixed annuity fees and expenses, and touched on the pros and cons of no-fee annuities. We’ve also provided insights into variable annuity fees and discussed why seniors must understand these costs. Lastly, we’ve given you a rough idea of how much an annuity could cost monthly.

We hope this guide has given you the confidence to make informed decisions about annuities. Always remember, when considering any financial product, it’s essential to consult with a financial advisor to ensure it aligns with your overall financial plan. Here’s to your financial health and a secure retirement!

Costs Of Annuities

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Frequently Asked Questions

Do annuities have high fees?

The fees associated with annuities can vary but are typically higher than those associated with other investment products (variable annuities). This is because annuities are complex products, and there are a variety of costs that go into them. However, it is essential to remember that not all annuities have high fees. Some annuities have low fees, and there are even some that have no fees at all. Therefore, shopping around and comparing different annuities is vital before deciding.

What annuities have the lowest fees?

There is no one answer to this question, as the fees associated with annuities can vary depending on several factors. However, some annuities that typically have low fees include fixed and indexed annuities.

Are there annuities with no fees?

Yes, there are annuities with no fees. These annuities are typically called “no-load” annuities. However, even though these annuities don’t have any upfront fees, they may still be other costs (like surrender charges). Therefore, reading the fine print and understanding all the fees before purchasing an annuity is essential.

What is a rider charge on an annuity?

A rider charge on an annuity is an additional fee that can be added to the cost of the annuity contract. Riders are optional features that provide additional benefits, such as death benefits, long-term care coverage, or guarantees on the minimum interest rate earned on the annuity. The cost of riders is typically an additional charge on top of the annuity’s base premium and can vary depending on the type and length of coverage.

Are annuities expensive?

Annuities can be expensive, as they typically come with various fees, charges, and expenses, including administrative fees, rider charges, and mortality and expense risk charges. The cost of an annuity can vary depending on the type of annuity, the length of coverage, and the terms of the contract. It is essential to consider an annuity’s costs and benefits carefully and consult with a financial professional before deciding.

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Shawn Plummer is a Chartered Retirement Planning Counselor, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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