How Much Does an Annuity Cost?
Annuities are part of an insurance policy that pays out income and are regularly used by people as part of a retirement strategy. As a matter of fact, most companies claim that by putting a lump or periodic sum of money into an annuity, the principal is “guaranteed” with an insurance benefit. Not to mention that most of these companies claim that you will be receiving as much as $4,000 a month for life. However, the costs of annuities are relatively high. This is the reason that annuities usually receive negative acceptance among the majority that are out there planning for retirement.
How much does it cost?
- Like any other investment (either bad or good), the cost for annuities depends largely on many factors. According to Fool.com, the costs can vary among different companies and policies within a specific company. Also, the variable annuities have more features than fixed annuities. Thus, the fees and expenses within a variable annuity are higher than their fixed counterparts.
- An article on Businessweek.com revealed that the annual fee for the guaranteed income rider averages about 1.03 percent of the assets in the account of the individual. The regular annuity fees, on the other hand, average about 2.51 percent.
- Freeby50.com, in reference to Vanguard’s Annuity site, said that you can identify the costs of an annuity or the payment from a lump sum by calculating some necessary information such as the age of the individuals and the inflation adjusted annuity with a specified joint survivorship rate. For example, if a 50 year old man and a 46 year old woman select an inflation adjusted annuity with 100% joint survivorship, the lump sum of $100,000 will pay out $318.45 a month to be paid for the rest of their lives.
What is going to be included?
- For a variable annuity, the customer buys a variable annuity and then picks investments such as stocks and bonds that are offered in the contract. In the event that the owner wants to take out the money early, he will get the annual income which is based on the highest value the account ever reaches. However, the amount is not available in cash. It only becomes the basis in determining what will be the exact amounts to be withdrawn each year from his account.
- To find out type of money you can potentially get with an annuity, ImmediateAnnuities.com has a useful calculator in which you can enter your basic information. It will then tell you a approximate cost and planning package.
What are the extra costs?
- Below are some of the fees that can be hidden in an annuity contract (or may not be shown at all). These can be for things such as the agent that sets it up, filing fees, etc. This list is given by Investopedia.com:
- Fund Management
- Tax Opportunity Cost
- Tax on Beneficiaries
Tips to know:
- By using variable annuities, one can save for his retirement later in life. Investments such as stocks and bonds are good options, not to mention that a person’s money will grow tax-deferred until it is withdrawn.
- Always remember to consider the pros and cons of investing with an annuity before deciding on one. Always bear in mind that your entire investment might be lost if you place your money in contract with a company whose quality and reliability is questionable.
- Always review the contract and ask for the necessary inclusions and the hidden fees whenever you want to invest in an annuity.
How can I save money?
- If your budget allows for it, opt for a variable annuity rather than a fixed annuity. But if you want to save a great deal of money by minimizing the features you get, go the fixed annuity route.
- It is well known that annuities are downright expensive. To save money on monthly fees might be impossible. However, you can always get the value of your money if you will choose a reputable company in which you place your investments. As with all financial decisions, you need to consider the long term benefits rather than the short term expenses. If possible, get the opinion of a financial advisor before making a decision.