The Ultimate Guide To AnnuitiesYour One-Stop Resource for Retirement
What are the disadvantages?
Annuities are usually sold as big moneymakers while their obligations at the bottom in small letters. While annuities give us great advantages for our retirement plan, we also need to consider the responsibilities that we will have for this kind of investments and how they will influence our plan. Here we’ll explain a few:
Since annuities are usually sold by insurance brokers or sales agents we would have to keep in mind that commissions will be collected. Generally, commissions in annuities are around 10%.
If we took out our money before a determined period, we will probably have to pay surrender charges. These charges usually represent a 7% of the investment and it will decrease around 1% per year but in some cases the charge ascends to 20%.
If we invest in a variable annuity we may encounter high annual expenses, with insurance charges that are around 1.25% (or more), management fees that are between 0,5% to 2%, and charges for several insurance riders that will add at least another 0,6% to the sum. If we add these percentages, we’ll see that we’re talking about 2% to 3% in annual charges and this could be a big part of our retirement money at long term.
As we see in different retirement account systems, annuities will charge a 10% of our money if we make withdrawals before turning 59 ½ years.