Have a Question? Ask an Expert!

Q. Do all annuities have fees?

Posted by: Sharon B.
A. No, not all annuities have fees that the investor has to pay. Regardless of what some so-called experts will tell you. But to fully answer the question, we need to split annuities into two camps: fixed and variable. Fixed annuities have no fees. When you invest in a fixed product, 100% of your deposit amount goes to work for you. Any commissions on the sale are paid directly by the insurance carrier. There are two primary types of fixed annuities: CD-type savings vehicles called fixed deferred annuities and income-paying vehicles called immediate annuities. In both of these cases, there are no fees taken out of your initial deposit. Variable annuities, on the other hand, do come with fees. It's not uncommon to see annual expenses of 2% or more on these types of products. If you're thinking of purchasing a variable product, read the prospectus carefully and be sure you understand all of the fees associated. Penalties/surrender charges are another matter. Like any type of investment -- even a simple savings bond -- penalties can and will be incurred if you don't follow the rules. That's why it's critical to understand how and when you can access your money in an annuity. Heck, that's just good advice for any investment. If you've not yet seen it, you'll want to check out our free ebook on the Seven Mistakes Annuity Investors Make. Not understanding the fees and expenses is a big part of that, as are the penalties for accessing your money too early. I'll close with this: fixed annuities are pretty simple to understand. Most aren't overly complex. Hence, there's no need to charge fees to keep the accounts going. They just... work. Variable annuities are another matter all together since they are tied to the performance of the sub-accounts (mutual funds). They take a lot of work. Hence... fees. But just so we are clear -- not all annuities come with fees. Make sure this is the case for yours.