Annuities generally refer to individual policies bought through annuity or insurance companies that charge certain fees. Contributions to most annuities are made with after-tax dollars and only the earnings on those contributions are taxable when you start making withdrawals.
The fees, however, may also have an impact on whether a particular annuity is right for you.
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Understanding the features and costs of an annuity gives you more information when shopping for an ideal retirement plan. Compare prices from several companies and the options available to make sure the annuity is worth the costs. Ask the annuity agent about what the annuity will actually deliver and the conditions of the guarantees.
An annuity is not a good investment if the restrictions are cumbersome and you don't think you're getting what you want for your money,
reports Fidelity.
Consider the creditworthiness of the company by checking its ratings with Moody's, A.M. Best or other rating agencies. You want a strong company that will be around for the life of the annuity.
Here is some information on the various fees and expenses involved in annuities:
Insurance charges are often referred to as mortality and expense fees. These fees pay for the insurance to guarantee the annuity. They also cover administration fees to manage the annuity.
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Surrender charges are paid by you to the insurance company if you withdraw more money than the limit set by your annuity contract or if you take a withdrawal before age 59 and a half, according to IRS regulations. The charges tend to be higher in the early years of a contract and could significantly affect retirement planning,
according to Investopedia.
Management fees are paid as a part of your premium to the insurance company for managing the fund. Review the annuity prospectus for information on what you can expect to pay in these fees.
The term "underwriting" refers to the professionals who charge a fee for determining the actuarial risk on the benefits of the annuity.
The fees may make the purchase of an annuity seem complex, but an annuity agent or financial adviser can make them easier to understand. In some cases, there might be higher expenses in one area that make annuities worthwhile to provide peace of mind.
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