Search thousands of topics on CostHelper.com

BROWSE ALL TOPICS >> babies & children  cars  consumer electronics health & personal care home & garden personal finance  pets  schools small business sports weddings
CostHelper > Personal Finance  > Taxes & Financial Planning > Annuity

Annuity Cost


How Much Does an Annuity Cost?

 
low costFlat Annual Fee: $20 Per Yearaverage costAdministrative Fee: Up to 1% of Total Investmenthigh costMortality and Expense Fees: .25%-3%
post Post    

An annuity is a financial contract between an investor, usually someone saving for retirement, and an insurance company. A person, typically the investor, pays an insurance company a sum of money; in turn, the insurance company will, at a later time, make regular payments to the person for a defined period or an indefinite period, usually from retirement until death.

Typical costs:

  • Insurance companies charge an administrative fee for maintaining the annuity account. Most companies charge a percent of the investment[1] of up to 1% of the total investment. At 1%, that's $100 each year for every $10,000 invested. Some insurance companies charge a flat annual fee of about $20 a year.
  • A fixed annuity has the least amount of investor involvement. The insurance company agrees to pay a predetermined amount, regardless of how well the annuity's money performs. Depending on whether the annuity does well or not, the insurance company could lose money or make money on the investment.
  • With a variable annuity, the investor secures a minimum regular payment, but has some say in what accounts money will be invested and the possibility of receiving more. The amount paid to the investor will vary depending on how well the annuity fund performs and the cost-of-living index. The person selling a variable annuity to an investor earns a commission, which can range from 6%-10% of the invested sum. For every $10,000 invested, that's $600-$1,000 taken out in this one-time cost. AARP provides a variable annuities overview[2] .
  • Both fixed and variable annuities have mortality and expense fees, which range from .25%- 3%, or $25-$300 each year for every $10,000 invested. These fees pay the insurance company for two risks it is taking on: that their annuity holders will live longer than their invested money lasts, and that their annuity will lose money in the accounts.
  • Insurance companies use money placed in annuities to invest in mutual funds, which have their own set of fees, which can be up to 2%.
Related articles: Reverse Mortgage, Mutual Fund, 401(k), IRA, Financial Planner

What should be included:
  • Annuities shift the risk involved with saving for retirement from the retiree to an insurance company. Retirees who opt for an annuity have the security of knowing that they'll receive a set sum of money monthly, quarterly or annually, for the remainder of their lives.
  • Annuities are an option for those not interested in maintaining or updating an investment portfolio on their own, or who fear they may not be as capable of handling an investment portfolio as they age.
  • An annuity protects an investor against underperforming investments and the risk of outliving their savings. At the same time, that investor loses control over a large sum of his or her savings: like a pension, an annuity doles out a fixed amount regularly; otherwise, the annuity holder can't touch the money without facing stiff penalties.
Additional costs:
  • Variable annuities offer many options to customize the annuity. Called riders, these options come with fees of their own that can cost as much as 5%. Popular options include a death benefit for a benefactor should the insured die before the annuity account is exhausted and a long-term care benefit to secure care for the insured should they become seriously ill.
  • Annuities come with the option to withdraw a percentage out of the annuity account, typically about 10%. If the investor wishes to withdraw more than that, they are faced with a surrender charge. This charge is typically about 7% of the sum above the allowed amount.
Shopping for an annuity:
  • The U.S. Securities and Exchange Commission[3] , which regulates variable annuities and some indexed annuities, recommends thoughtful consideration of each option and benefit and their related costs.
  • Some employers are switching from defined benefit retirement plans (in which employees are guaranteed a set sum upon retirement) to more predictable and less costly defined contribution retirement plans (in which employees are guaranteed a set sum to be contributed into a retirement plan). In light of this shift and the increasing average age of death, the federal government is exploring ways[4] to encourage annuities as a secure income in retirement.
  • Some investment advisors, such as The Motley Fool[5] say that annuities are only a good idea for a small group of people. Other investment analysts, such as Morningstar[6] , maintain that annuities are often a good idea.
post Post    
CostHelper News


Forgotten Expenses In a Home Addition Budget
Items like construction costs, permit fees or debris removal aren't the only expenses to consider when calculating the total costs of a home remodeling project. || Posted August 5 2013


7 Lesser-Known Discounts for the 50+ Crowd
As they age, members of the Baby Boomer generation don't like to admit that they're senior citizens, but they love getting discounts. It's kind of a quandary, because some of the best deals available are reduced prices for older folks. || Posted October 21 2013

‣ All CostHelper Blog Posts


What People Are Paying - Recent Comments


 

Comment On Your Experience With an Annuity
 
Subject:  *
Amount Spent:  *
Type of Annuity: Administrative Fee: 
Mortality and Expense Fee:   
Comments: 
Purchased:  Year: 
City:  * State:  *
 
Information about you:
Email:  * Email addresses are not displayed.
Name:  This is the name we'll display with your post.
me on this computer
*=required field.
 



External Resources:
  1.  /personal.vanguard.com/us/whatweoffer/annuities/fixed
  2.  www.aarp.org/money/investing/info-2007/variable_annuities.html
  3.  www.sec.gov/investor/pubs/varannty.htm#vch
  4.  www.gao.gov/products/GAO-11-400
  5.  www.fool.com/retirement/general/2010/03/10/are-annuities-ever-not-stupid.aspx
  6.  www.morningstar.com/cover/videocenter.aspx?id=391029
More Personal Finance Topics
Check Out All Costs for Personal Finance How Much Does Closing a Home Cost? How Much Does a Traffic Ticket Attorney Cost? How Much Do Funeral Flowers Cost?

Search Thousands of Topics on CostHelper.com

 
Today's Featured Cost Articles

About CostHelper
CostHelper is based in Silicon Valley and provides consumers with unbiased price information about thousands of goods and services. Our writers are experienced journalists who adhere to our strict editorial ethics policy.

CostHelper Community
Flu symptoms
Paid: 5932.68
Couldn’t stand headache pain when I caught the flu in March 2019. Threw up pain relievers, couldn’t eat or drink. After 5 hours of pain decided to hit ER... [more]
-GayLynn
Emergency Room Visit Cost
Financing
Paid: 20000.00
How do people afford wells? No one finances?... [more]
-Kourtney
Well Drilling Cost
1 yr 23lb Male Neuter
Paid: 424.08
The price would have been $282.08, but I opted for the blood work and to have it done via laser versus scalpel. I was still surprised by the cost, but I didn't really have anything to compare it to... [more]
-Joelle
Dog Spay or Neuter Cost
Is this cost of tax preparation correct
Paid: 1845.00
Each year our tax preparation cost goes up faster than inflation. we started at $800.00 in 2012 and now our bill for preparing taxes this year is $1,845.00... [more]
-smallbizchris
Business Tax Preparation Cost
Termite inspection/WDOR as required by the VA
Paid: 125.00
Called Terminix,,which I thought was an upstanding company,,guy came out did the inspection,,I told I'm a Vet and its required by the VA in order to complete the refinance of my home,,also it is required by the VA to use the VA approved for... [more]
-Felix Vaughan
Termite Inspections Cost
New 317 sq ft deck quote
Paid: 10500.00
This contractor built my fences out of redwood heartwood. They just quoted me for a redwood deck and I think it's a decent price. Curious to know what others think. I'm in the SF Bay Area where costs are usually higher for everything... [more]
-Ariana Faustini
Redwood Deck Cost