Show #314 Airing Sunday, October 9, 2005
Annuities offer tax benefits. Salesmen are quick to tell you that. But they may not tell you about the fees and charges for annuities, and those can be high. Here to make sure you understand what you’re going to pay before you make an investment is Jim Lineweaver, Founder of Lineweaver Financial Group.
Question: Annuities are known for various fees, and often receive criticism for that.
Answer: Like other investments, annuities have fees and expenses. However, the fees for annuities are quite high.
Question: Are some annuities more prone to fees than others?
Answer: Costs do vary among annuities, and variable annuities tend to have more fees and expenses than fixed annuities. The typical variable annuity has nearly 2% in management and Mortality & Expense Risk charges.
Question: What are some of the fees one often finds in an annuity?
Answer: Surrender Charge: a charge if an annuity is cashed in before a specific period of time. That period may range from 1 to 12 years. The typical charge st arts at 7% in the first year, and declines by 1% per year. An annuity should always be considered a long term investment.
Mortality & Expense Risk Charge: The fee for the insurance risk the company assumes by providing you guaranteed future payments.
Administrative Fees: Cover administrative costs, transferring funds, tracking purchase payments, issuing confirmations and statements, record keeping and customer service.
Contract Maintenance Fee: Annual flat fee to keep the contract active. The fee is approximately $25 or $30 per year. It may be waived on a variable annuity over a certain dollar amount.
e.) Underlying fund expenses on subaccounts: Covers management fees (costs of managing the portfolio of securities within the account) and fund expenses (cost of buying and selling securities plus administering trades).
Premium taxes: Certain state and local governments impose premium taxes, which vary upon jurisdiction.
Question: What do these fees mean to someone who might want to invest?
Answer: Yes, taxes are deferred, but annuities are undoubtedly costly to own, and they are absolutely not meant for the short-term investor. If you need to get out early, surrender charges could swallow a large amount of the money.
Do the fees and charges of an annuity outweigh the benefits of tax deferral? Don’t defer getting good annuity advice. Give Jim’s office a call to learn more, or for a list of annuity fees.
