Annuities tend to get a bad rap in the media. If you listen to public figures like Suze Orman or Ken Fisher, you probably think you should run the other way when someone mentions annuities. Maybe you purchased one anyway, thinking the benefits or features offered sounded too good to pass up the opportunity to help protect your retirement income. If you’re like many other residents in the Midwest, you tend to be conservative and want some reassurance that your retirement income will carry you through your later years. An annuity seemed to fit the bill.
But not all annuities are bad. What you have to be careful with is how much you pay in fees to hold your annuity.
There are several types of annuities and even more companies offering them with their own variations. For the purpose of discussing annuity fees, we’re going to narrow in on variable annuities (VA), an annuity that gives the investor the freedom to pick and choose the investments inside the product. VA costs have increased significantly since 2008, and they are even more expensive if you have extras such as income riders, death benefits, or withdrawal benefits. You could be paying upwards of 4% a year, which means your investments, which you chose, have to do better than that to earn you a profit. Are variable annuities worth what you pay?
As an example of how annuity costs work, we’re going to review one such product offered by Jackson National, the leading company in new VA sales. All of the facts listed below are from a product called Perspective II (from the current prospectus available on Jackson National’s website reviewed on 5/9/18).
All charges are subject to change to a maximum charge, which is shown in the prospectus.
Assuming the value of your account is above $50k and an income and death benefit are both elected, the total costs range from 2.98% to 5.35%.
What does this mean? It means that everything falls on the investor since the investor picks the mutual funds that make up the annuity. The investor has to hope they picked funds that perform well enough to cover the costs or break even. If not, the cash value will not grow. The income and death benefits will grow by the value you selected, but that’s only helpful if you use the benefit.
There are so many different types of annuities out there and I would like to help you determine how much you are paying for the specific annuity product you own. I do this through an Annuity Stress Test, which allows you to analyze your annuity and determine its strengths and weaknesses. Once we have the relevant information, we will then review these findings in a clear and concise report that calculates all the annuity’s fees, assesses the product’s performance during numerous financial scenarios, and compares its performance against other annuities.