Annuity Fees: What to Look for and How to Avoid

To Fee or Not to Fee

Today's topic is annuity fees. What to look for, how to avoid them, do you want to avoid them, how do they work? All of those things. So are there any fees associated with initiating an annuity? As you know, an annuity can mean many different types. So it doesn’t make any sense to say you hate all annuities. Social security is an annuity, and no one hates that. Ultimately, it depends on what type of annuity we are talking about.

Now, fees. Let's talk about fees for a second. In my opinion, there are two types of fees. The first fee is the annual fee of the policy. Does the policy have an annual fee? And if so, what is that? That's one fee annual fee. The other fee that's in the back of your mind. Commissions. What's the commission? Let's talk about that first. Commissions with annuities of all types are built in to the product. Some say they are hidden. Semantics. It's part of the overall expenses of the annuity, light bill, water bill, and commissions. So when you put in 100,000 dollars in an annuity of any type and get your first statement, it will say 100,000 dollars. Did the agent get paid? Yes, absolutely. In most cases, that commission is a one-time fee, and the simpler the product, the lower the commission. You're not paying it. It comes out of the company reserves. It makes sense, doesn't it?

The Application Process

But I think the question is surrounding the fees to open the account. If it's in an IRA, is there an IRA fee, and what are the annual fees? So let's go through the application process. If you use our team, we'll take care of everything from start to finish. There are no fees for that. There are no IRA fees. I used to work for the large brokerage firms Dean Witter, Paine Webber, Morgan Stanley, and UBS. They would nickel and dime you and charge you IRA fees, all this stuff.

No Fees?

So let's go through the annuities that don't have fees. I love it when journalists, masters of the universe, and very stupid financial advisors don't know anything about annuities. Annuities are all expensive. Really? No. Single Premium Immediate Annuities have no annual fees. Deferred Income Annuities have no annual fees. Qualified Longevity Annuity Contracts have no annual fees. Multi-Year Guarantee Annuities have no annual fees. Fixed Indexed Annuities, without an income rider, have no annual fees. Now I don't sell variable annuities, a disclaimer. I just don't sell anything that has the potential to go down. Those do have fees. If you want to buy one, buy one. You can buy no-load variable annuities if you want to, which don't have any fees if they're no-load. Right. The question is, are there any fees when you initiate an annuity?

Annuities, in my opinion, are contracts, not investments. So when looking at annuity contracts, you’re looking for contractual guarantees.

Income Riders

Let's talk about if you bought an index annuity with an income rider. The income rider is an attached benefit to that policy for a future lifetime income stream benefit that you can turn on when you want to. But that income rider benefit comes with a fee. So in most cases depends on each carrier. They're not all the same, but let's just say it's a 1% annual fee; that 1% annual fee is going to be taken out of the accumulation value for the life of the policy. Now, does that make a big difference? In my opinion, no. If you're buying lifetime income and a lifetime income rider has the highest contractual guarantee, then we're focusing on the lifetime income guarantee that the writer provides.

The Two Questions

We could care less about the fee; it’s taken out of the accumulation value of the index annuity; who cares? You're getting a net amount of that income rider, that lifetime income stream period. We're going to shop all carriers for the highest contractual guarantee. The bigger picture is two better questions to add to yours: What do I want the money to do contractually? And when do I want those contractual guarantees to start? Screw the fees. Commissions are built-in and paid by the company reserves. That's out of the picture. And the guarantees are what you need to focus on, not the fees.

Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.