Given the performance of the stock market over the past few years, many consumers have become interested in annuities. These insurance products offer a guarantee of principal. They also allow the contract holder to defer taxes on the growth inside the annuity.
Advisors often market variable annuity products as a way to participate in the upside potential of the stock market while preserving the original value in the contract. The idea is to invest in the policy’s sub-accounts which are very similar to mutual funds. If these funds perform well the owners account value grows. If they perform poorly, at least the principal is protected. This is pretty compelling.
Unfortunately, this is only part of the story. These products are actually very expensive. An article in the May 4, 2009 issue of The Wall Street Journal (“Get Less, Pay More”) points out that the annual fees in variable annuities total close to 4% (according to annuitygrader.com).
Most consumers have no idea how much annuities cost. They tend to not read the prospectus or ask about fees. Many Advisors do not properly disclose these expenses or the commissions which may be as high as 10%.
If you are considering investing in an annuity, ask the agent for a complete disclosure of the fees (mortality and expense, surrender charges, management fees, commissions). Also, keep in mind there are low cost annuities available through TIAA-CREF, Vanguard, USAA, Ameritas and other companies.
We believe in transparency. You have a right to know all of the costs associated with the financial products you purchase. To learn more about “intelligent investing,” please visit our web site, cascadewealth.com.
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