What expenses are involved in fixed and variable annuities? Are they less than with mutual funds?

There are more fees in an annuity than a mutual fund. If someone is trying to tell you otherwise they are lying.

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There are a lot of fees hidden in annuities. First the mutual funds involve often have load fees and 12b-1 fees. These go to your agent and his company. When you die, the insurance company keeps all your money, your heirs do not get it. They use the money to pay the annuities of the people still alive, as well as to make themselves a profit.

Do not buy an annuity unless you understand it inside and out. They are hard to impossible to get out of. Consider a low cost Vanguard.com annuity. (But only if you understand it well.)

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Expenses are generally higher in variable annuities than mutual funds but there are no front-end loads to deal with and annuities can offer things that mutual funds can’t – like guarantees.

Annuities may help you 1)Receive guaranteed retirement income payments for as long as you live, 2)Protect beneficiaries with a death benefit 3)Diversify your investments. 4)Grow assets on a tax-deferred basis and 5)Avoid outliving your assets.

If you want to protect your beneficiaries, variable annuities generaly offer a choice of death benefits to protect assets for your beneficiaries should you die prior to annuitization. Also, a variable annuity’s death benefit avoids the expense and delays of probate.

If you’re concerned about the volatility of the stock market some variable annuities offer an “Income Benefit” feature. This optional feature (available for an additional fee) can provide you with a minimum level of income (upon annuitizing the contract) should the market decline dramatically. Some variable annuities also offer principal protection features which guarantee that you will get back at least your initial investment after some stated period of time (typically ten years).

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There are things I agree and disagree with the above repliers.

The expenses of an annuity can vary. It depends on the length of the surrender period, living and death benefits… fund loads and 12B-1 if applicable.

The insurance company makes money from some of expenses, from early surrenders, and the gamble that actuaries calculate.

Are they more expensive than mutual funds? Depends on the annuity, depends on the mutual funds. The annuity I usually use with clients have costs close to B class shares.

To comment as to whether they are good vehicles or not…. In my opinion, there are few vehicles where you can invest a large lump sum of money (like an inheritance) an have it grow tax deferred. Also, as people are living longer with advances in medicines and such, sometimes a variable annuity can mean the difference between living and living poorly.

I recommend speaking to a good financial advisor to help you with questions like this to figure out what is best for your present situation.

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Easiest way is to go to your bank, ususally they would have a financial consultant or lisenced rep about annuities and mutual funds. Since annuities are from insurance company, varies from states, but the policy does have free look, so you can know about the policy. As far as for mutual funds, you can just ask for a prospectus.

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