Most of the mainstream media decries annuities as bad investment choices sold by unscrupulous agents solely to earn high commission.
CNN/Money even states “annuities frequently charge other high fees as well, usually including an initial commission of up to 10% of your premium or investment”. The key word in this statement is “up to” – the majority of fixed annuities today are in the five to seven percent range if the agent elects to take the commission up front. It is important to keep in mind that commission on an annuity will not reduce the annuity’s account value. Licensed agents are typically paid commissions directly from the insurance company based on state regulation.
In this video Dick and Eric examine annuity commissions and how they compare across annuity types as well as looking at how these commissions compare to investment fees and commissions.
**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.
Here is a portion of the CNN/Money Article cited above… a page in their Ultimate Guide to Retirement section.
Typically you should consider an annuity only after you have maxed out other tax-advantaged retirement investment vehicles, such as 401(k) plans and IRAs. If you have additional money to set aside for retirement, an annuity’s tax-free growth may make sense – especially if you are in a high-income tax bracket today.
Annuities have some significant drawbacks. For one, you must be willing to sock away the money for years. If you make a withdrawal within the first five to seven years and you typically will be hit with surrender charges of up to 7% of your investment or more. Annuities frequently charge other high fees as well, usually including an initial commission that can be up to 10% of your investment. If you purchase a variable annuity#, ongoing investment management and other fees often amount to 2% to 3% a year.
These fee structures can be complex and unclear. Insurance agents and others who sell them may tout the positive features and downplay the drawbacks, so make sure that you ask a lot of questions and carefully review the annuity plan first. [Read More at CNN/Money]