Annuities can be a fantastic way to secure guaranteed income throughout your retirement years. With this being said, there are fees associated with annuities, much like nearly all other financial products on the market. Gaining a better understanding of annuity fees can help you make a more educated decision if you choose to make the decision to invest. Here at The Lambert Agency, we always believe in providing our clients full transparency so you know exactly what you’re receiving, what you’re paying for, and how annuity fees may end up impacting long-term performance.
Why Annuities Have Fees
An annuity is essentially an insurance contract, and the associated fees help to cover the guarantees and benefits the annuity product subsequently provides. An example of this is how fees support a lifetime income rider, death benefit, and account management features. While these associated costs are usually justified in most cases, having a better understanding of the fees and where they’re coming from helps you avoid any and all surprises along the way.
Common Types of Annuity Fees
Below are some of the most common forms of annuity fees:
- Mortality & Expense Risk Charges (M&E Fees)
Mortality & Expense Risk Charges, better known as M&E Fees, help cover the insurance guarantees which are built into an annuity product. These fees are commonly charged as a percentage of account value and will often range from 0.5% to 1.5% annually.
Ex.: With a $100,000 annuity, an M&E fee of 1% would equal to a $1,000 per year annual fee - Administrative Fees
Administrative fees are the costs of servicing your annuity. Annuity servicing will often consist of recordkeeping, statement management, and customer support. An administrative fee usually hovers around 0.1% – 0.3% annually. - Investment Management Fees (Variable Annuities)
If you happen to choose a subaccount, such as a mutual fund housed within a variable annuity, you’ll pay fees which are similar to the expense ratios often found in mutual funds. Investment management fees will vary widely, yet they’re often anywhere between 0.5% – 2%. - Rider Fees
Many forms of annuities will offer optional add-ons, referred to as “riders”. These riders may consist of guaranteed lifetime income, enhanced death benefits, and various forms of long-term care features. Rider fees will usually hover around 0.5%-1.5% annually, ultimately depending on the underlying benefit. Here at The Lambert Agency, we always evaluate your overall goals to best determine whether riders are worth the associated costs. - Surrender Charges
Nearly all annuities will require you to keep your money fully invested for a lock-in period over a set amount of time. This is often referred to as the “surrender schedule”. If you choose to withdraw earlier than anticipated, you will likely end up paying the surrender fees. These fees range from 1%-10% and they usually decline over the years you have your funds held in the annuity. - Other Transaction Fees
Some annuity products may charge for such things as wire transfers, overnight mailing of documents, or excessive withdrawals during a set period of time. These fees, while generally negligible, do exist.
Which Annuities Have Higher (or Lower) Fees?
- Variable Annuities: This form of annuity will often have the highest level of associated fees due in large part to its investment subaccounts and riders.
- Indexed Annuities: This form of annuity will have moderate levels of fees, typically only if you add additional riders. The base product of an indexed annuity will often have no annual fee.
- Fixed Annuities: This form of annuity will usually have the lowest fees, but the fees themselves will be baked into the interest rate rather than outright deducted.
When you choose to work with The Lambert Agency, we thoroughly break down the major and minute differences in annuity products, so you’re able to truly understand each and every trade-off, benefit, and fee involved. The bottom line is: more annuity features usually mean higher fees, but with these higher fees there’s more flexibility and guarantees.
How to Decide If the Fees Are Worth It
- Compare Benefits vs. Cost
If your lifetime income rider ends up costing 1% annually, yet it guarantees an annual income of $30,000 for the entirety of your remaining years, it could be very well worth it. - Evaluate Your Goals
Whenever choosing an annuity product, you’ll always want to fully evaluate your goals. Are you seeking out pure income? Do you want market participation? Are you anticipating a wealth transfer? The correct annuity product will avoid paying for features you don’t need, thereby helping you avoid fees you don’t need to pay. - Work With a Transparent Advisor
When you choose to work with The Lambert Agency, we always fully illustrate your annuity options with and without riders, so you’re able to see the true impact on fees and income, in a detailed side-by-side comparison.
FAQs About Annuity Fees
Do all annuities have fees?
No, not all annuities have fees. Some fixed annuities have no explicitly stated annual fees, yet the costs are built into the credited interest rate of the annuity product.
Can annuity fees reduce my account value?
Yes, variable annuities typically experience this reduction in account value the most out of all annuity products. For this reason, it’s very important to balance growth potential against any offsets driven by fees.
How can I minimize fees?
Sometimes, the simpler annuity structure may be just what you need to align with your retirement goals, all at a lower annual cost.
Contact The Lambert Agency Today
Annuities can be a very powerful retirement tool, when you actually know what you’re paying for. Through properly breaking down annuity fees and comparing your various options, you’re able to ensure your money is working for you without the unnecessary, excessive costs. When you choose to work with The Lambert Agency, you’re choosing to work with an agency who believes in transparency and client education first and foremost. We will happily walk you through any and all fees, benefits, and features of your annuity product so you can feel truly confident prior to making a final decision on your preferred annuity.