Today's topic is annuity fees. What to look for, how to avoid them. Do you want to avoid them? So, are there any fees associated with initiating an annuity? Annuity, as you know, can mean many different types. You can’t say "I hate all annuities" Really? Do you hate your social security, player?
Let's talk about fees for a second. There are two types of fees in my opinion. The first fee is the annual fee of the policy. Does the policy itself? You know I'm going to go over every single type. Does the policy have an annual fee? And if so, what is that? That's one fee, an annual fee. The other fee that's in the back of your mind is commissions. What's the commission? Let's talk about that first.
Commissions with annuities of all types are built into the product. Some say they are hidden. Semantics. It's part of the overall expenses of the light bill, water bill, and commissions. So when you put in $100,000 in an annuity of any type, and get your first statement, it's going to say $100,000. Did the agent get paid? Yes, absolutely. In most cases, that commission is a one-time fee, and the more simple the product, the lower the commission. You're not paying it. It comes out of the company reserves. It makes sense, doesn't it? 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, or hidden IRA fees. And I think about that for a second. I used to work for the large brokerage firms Dean Witter, Paine Webber, Morgan Stanley, and UBS. I don't have a Swiss accent. UBS, I guess. That wasn't good. What was that? Anyway, they would nickel and dime you and charge you IRA fees and all this stuff. Annuity companies do not do that. I mean, they do not nickel and dime you, period.
So let's go through the annuities that don't have fees. I love when journalists, masters of the universe, and very stupid financial advisors that don't know jack about annuities, "Annuities are all expensive." Really? No. Single Premium Immediate Annuities, no annual fees. Deferred Income Annuities, no annual fees. Qualified Longevity Annuity Contracts, no annual fees. Multi-Year Guarantee Annuities, no annual fees. It fixed indexed annuities without an income rider, no annual fees.
Now, I don't sell variable annuities. 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? So when you initiate, the question is are there any fees when you initiate an annuity?
Let's talk about if you bought an indexed 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, it 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 will 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 that rider’s lifetime income guaranteebout the fee. The fee is being 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 the 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. Okay? Commissions are built in, and paid by the company reserves. Okay, that's out of the picture. And the guarantees are what you need to focus on, not the fees.
Now, annuities, in my opinion, are contracts. They're not investments. But when looking at annuity contracts and the contractual guarantees, you're looking for the contractual guarantees. Look behind me. I'm in the will do, not might do studio. Will do the contractual guarantees. Might do is the hypothetical, theoretical, back-tested, projected unicorn chasing butterflies that we don't look at. Never buy an annuity for the might do. Buy it for the will do. If you're buying it for the will do, the contractual guarantees, that's the question.
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.