In order to fund their retirement, many people are turning to annuities, never thinking about the fees and the annuity commissions that financial planners may be making off of their investments.
On the surface, an annuity is an investment that seems almost too good to be true. You invest a certain amount, then you are able to defer taxes on the growth of that investment. You, at retirement age, receive a fixed amount of money for a certain period of time, and you also have a death benefit. Sounds great on the surface. You must look a little deeper into the deal and find that the annuity commissions the financial planner is making may amount to 6% or even in some cases 8% of the total you are investing. If you invest $100,000, that amounts to $6,000 to $8,000 in annuity commissions. Where does this come from? From your investment, even though it may be hidden as cost of insurance, servicing fees, etc.
Annuity commissions do not stop there. There is usually a charge of about 2% per year on the investment for internal expenses that are paid out of the annuity. If this sounds like a bad investment but you want an annuity anyway, you might look into a no load annuity. On a no load annuity there are no annuity commissions. Certain insurance companies sell these directly to the individual without the involvement of a commissioned salesperson, even though some may be sold through a broker. Furthermore, you do have annual service fees, but they are much lower than those charged on a loaded annuity. Also, with a loaded annuity, you are locked in for at least 7 years or you incur a very steep surrender charge. There is no surrender fee with a no load annuity.
So why would anyone buy a loaded annuity with all the annuity commissions?
A no load annuity does not offer some of the provisions that make the loaded annuity popular. There are no guaranteed minimum income benefits, lifetime income benefits, guaranteed minimum withdrawal benefits or death benefits provisions. You also do not get investment advice that you would with a financial planner. Along with his annuity commissions come services, advice and support that you do not get with a no load annuity. Just consider the annuity commissions to be pay for the time your investment counselor spends working with you. If you think that you will need advice and counseling, then the annuity commissions may be well worth it to you.
If you feel that you do not or will not need investment advice in the future, and you are not concerned about the provisions lacking in a no load annuity, then it may be the investment vehicle for you. Just be sure that you are going to be hands on with your investment and keep a close watch on your annuity. If you cannot do this without a great deal of advice, then reconsider the loaded annuity.
Author Resource:
Allied Marketing Partners is the author of this article on Annuity Commissions .
Find more information about Annuity Commissions here.
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