Annuities may sometimes make sense for a client, but the costs involved can be difficult to understand and keep straight.
There are usually multiple costs involved and it’s incredibly important to understand them.
Annuity Types
Many types of annuities, exist, but there are 2 key ones.
When you purchase a fixed annuity, it pays you a fixed monthly amount. It may be adjusted for inflation, but that is usually purchased at an additional cost. These types of annuities tend to have the most transparent costs.
You can purchase an annuity to immediately start or to start in the future. If it is purchased to start in the future, it is called a Deferred Fixed Income Annuity (DFIA). DFIAs can be great for someone who wants to ensure they don’t run out of money. This is why they are commonly referred to as Longevity Insurance (not an official name).
Their key costs are underwriting, surrender charges, and management fees.
When you purchase a variable annuity, it pays you a variable monthly amount calculated by the funds you invested in. These types of annuities are very complex and their fees are not easy to understand.
While there are many types of variable annuities and it is critical to understand whichever one you may want to buy.
When the SEC has resources for you to understand this product, you know to tread lightly.
Their key costs also are underwriting, surrender charges, and management fees. But they also have investment fees, an upfront sales charge, insurance charges, and possibly more.
Next Step
Ready to take the next step and work with a fee-only CFP? Reach out to schedule a Discovery Meeting to learn more.