What are the fees with an annuity?

What are the fees with an annuity?

Keep it simple answer: It depends on which annuity you purchase. In general

  • Immediate Annuity – No fees
  • Fixed Rate annuity – No fees
  • Index (Hybrid) annuity – Generally no fees for base product. If you add on an Income Rider or a Death Benefit rider, there will be a fee.
  • Variable Annuity- Lots of fees

I consider fees to be annual fees that come out of your account.

Some people call surrender charges “fees”. I don’t consider them fees because as long as you play along with the terms of the contract, you never have to pay any surrender charges.

Surrender charges are not the same as annual fees.

So let’s break these down one by one.

What are the fees with an Immediate Annuity or Income Annuity?

These act like a pension or Social Security and it’s the type of annuity that goes back to the Roman times.

This is the “old” type of annuity that people have in their heads.

You deposit a sum of money at an insurance company and in return they agree to make payments to you for your entire life or a period of time.

The interest you earn is all calculated into the payments and there is generally no fee for this type of annuity.

What are the fees with a Fixed Rate annuity?

These work similar to Bank CD’s. You get a fixed rate of interest for a certain period of years. They come in contracts from 3 -10 years. The longer the contract, the higher your rate.

Typically there are no fees involved with this type of annuity. All you money goes to work on day one and earns whatever the stated interest is in your contract.

Fixed Rate annuities are very simple and straight forward products.

What are the fees with an Indexed Annuity or Hybrid Annuity?

These are the annuities that link your interest to a market index.

You can put money into an indexed annuity by itself. Or, you can also add on a rider if it’s appropriate for you situation.

So let’s look at both scenarios.

In the past, most index annuities had no fees if you just wanted the base product. You would have the option between different interest calculating methods.

Recently, some of the insurance companies have come out with different indexes you can link to .

Often, these new option have no cap on your earnings. But it order to provide these as an option, they are charging an annual fee for those crediting strategies.

So the good is you have more upside potential in good years. The bad is that there are some fees to do this.

So what about adding on a rider?

The two most common riders that people add on to an indexed annuity are Income Riders and Death Benefit Riders.

The Income Riders provide a guaranteed level of income without having to annuitize your contract.

It act like a reserve parachute. If you account runs out of money because you are taking out retirement income, the Income Rider will continue to pay you your monthly check, even if there is a zero balance in your account.

A Death Benefit rider typically provides a guaranteed growth rate on the amount that will pass on to your family when you pass away.

Sometimes these can be used for people to be able to take out their Required Distribution when they turn 70 ½ and still be able to pass on a nice balance regardless of what the market does.

The fees for the new crediting strategies or any of the riders vary from company to company, but they are all listed clearly in the product brochure or statement of understanding.

What are the fees with a Variable Annuity?

I’m not licensed to sell security products any more. So I would have you Google “Variable Annuity Fees”. There are many different resources.

I will say in general the fees can be quite substantial so make sure you know what you are going to have to pay before investing.

So you can see the question “What are the fees with an annuity?” can have a few different answers depending on which type you choose.


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