Episode Transcript
[00:00:05] Speaker A: This is Annuity straight talk. Since 2008, your host, Brian Anderson, has helped clients nationwide navigate the complex market for annuities. With Brian's assistance, hundreds of clients have achieved a profitable and secure retirement. You I would know because Brian has answered many of my questions concerning annuities and retirement planning so that you can benefit as well. Let's get started. Here's Brian.
[00:00:47] Speaker B: Hello and welcome everyone to the Annuity Straight Talk podcast, Episode number 116.
My name is Brian Anderson, founder and creator of AnnuityStraightTalk.com. 100% My effort, my research, my creation on this got guys helping me keep it organized, guys helping me produce and distribute it.
But this is my information. I want to share it with everyone to help everyone make good decisions in retirement. We're going to talk about a big topic today that's a lot of misinformation comes from people that want to sell you something else. I'm not trying to sell you an annuity. I just want you to understand them. Take your time. You'll understand the benefits of using them, and perhaps it works for you.
But today I want to talk about annuity fees. It's a common misconception that truly comes from an uneducated place and a lot of people. I thought it was all over. I thought I'd never hear this again as people would. Oh, okay. I get it. Yeah. Well, annuities would be fine if it wasn't for the hidden fees. Hidden fees? Hidden fees. Usually that's nothing but a scare tactic. This is an old newsletter from a few years ago. I'm revamping it for the website. It also kind of dovetails into a lot of the new information I put in there. This is something I could have easily done as a podcast before. Now is a pretty good time because of the development kind of the progression. I'm taking you through some of the bigger points of the new information on the website. Going to wrap this up with just good solid content before the end of the year. Going to get creative. It's going to be a great year next year. There's a reason why fees are valuable, certain people, and reason why fees don't exist on a lot of products. You got to understand both so you can avoid them. If you don't need them or don't want them, then you got a no fee contract. But if there's something really valuable that a fee is going to give you, then look hard at it. For the most part, this is going to apply to any fixed or variable, whether it's a fixed, fixed index variable, annuity.
So I'm just going to go fixed or variable to start with, and then I'm going to swap over to the new information on the website to kind of explain some of the specific ones.
But fixed annuities don't have fees. I talked about that in the past where it's basically the insurance company invests your money, and if they invest it at 5% and they pay you 4%, that 1% spread, it's a spread product. That is their profit. So that's every basic fixed, fixed, indexed annuity. So anybody look. Oh, man, that's rip off. Well, you look at what banks make on a CD, they're paying you 5%. Now they're loaning it out. What, the mortgage rates just hit eight. Put 100 grand and they loan out a million. At 8%, they make $80,000 and they paid you 5000.
That's where the rip off is, to be honest with you. I mean, if they're going to have fractional reserve lending, they should let everybody else participate in it as well now, but they're just hoarding all the money.
So fees only come into play when you add something to the base contract. If you want an income guarantee, you get a protected account value plus a guarantee of income. You add a fee. If you want a protected account value plus a death benefit or some kind of long term care payment, then they're going to add a fee because it's in addition to what the basic contract provides.
You don't want to pay a fee, don't take the benefit. Got guaranteed income writers. That was earlier this year, did a contract. You can get an income contract without a fee.
You can pay less or less premium up front, pay a fee, and get just as much income. So you have to analyze the two options to see which set of benefits you want and if the fee works for you. If it doesn't, pay a little more, don't have a fee, all that stuff.
So variable annuities, I'm not going to spend too much time on those, but for similar reasons. Now, a variable annuity has a base called mortality and expense fee. It guarantees your principal against a market loss at time of death. You put 100 grand into it, the market's down 20%, you only got 80 grand in there. You kick the bucket that M and e trues up that account, your heirs will get $100,000 back. That's what the fee comes. That's a benefit comes on every single variable annuity. In addition to that, you can add the income, the death benefit long term care, all that stuff. This is about where I think I'm going to leave this page. And it goes into it. So you guys can go all about annuity fees. Annuitystratetalk.com Newsletter Search Annuity fees you'll find it.
Okay, so over to the new section of the website, riders and Benefits. So writers are kind of the technical term for an addition to a contract. You want a guaranteed lifetime income rider, you want a death benefit rider, you want a long term care rider. They've got additional Benefits rider that come with a bunch of different stuff. But it's a rider. Riders come with fees. That's where the fees are found. So if a ding dong that doesn't really know a whole lot about of annuities sees one that's got a fee on it, he's like, oh, the fee. Well, he doesn't understand why it's there. Maybe it doesn't have to be there. Maybe it was optional. You selected that. Most of these are just a box. You check on the application, too. Most of them. But again, it's going to provide additional benefit. You got number one is the Guaranteed lifetime Income Fixed Index or variable annuities. And this is one of the main reasons why people buy fixed index annuities, even in the market. Again, if you're trying to maximize income with a portion of your assets, you got to look at fixed index annuities. Often they have the highest payout, which means regardless of account performance, you're going to receive a guaranteed income payout for life, either starting immediately or deferred for a number of years. You deferred, it steps up. But later in life, when the account value that the payments come out of, that account value draws that account down over time, if it goes to zero, you're guaranteed to continue getting money. Insurance company stuffs that money into their reserve pile insures themselves against you, living longer than expected. Transferring risk to an insurance company for longevity, for guaranteed lifetime, means they're covering something that you would otherwise have to cover with another product strategy or by setting money aside somewhere else.
So there's a fee for guaranteed lifetime income, in most cases, long term care enhancements. It's typically available with a guaranteed lifetime income rider. Long term care enhancement offers an increased income payout if you need long term care assistance. Typically, these payouts will enhance the payment for three to five years. Average long term care situation in the last like two years, nine months, or something like that. When income payments or when the enhanced payments are completed, when they go through that period if you go five years and you're still in that situation, they're going to revert back to the normal. So you get a little boost to income over time for a period of time. There are death benefits where you get an automatic increase to the death benefit amount regardless of account performance. Most cases you're going to pay an extra fee. It's like, well, okay, you pay 1% and we'll make sure that the money you put in for a death benefit will grow at 5% per year for however long. And so if your account doesn't do 5% or more, then at least your heirs are going to inherit a continually compounding sum that's going to grow over time.
If you don't pay that fee, then the death benefit is going to be the accumulated value of the contract. They wipe out surrender charges if it's before the end of the term. So you have to decide whether, hey, is this going to grow better than that death benefit, or do I want to add that protection? It's a decision you make. There's another one called Return of premium.
It's often called like an additional benefits rider. You pay a fee and it gives you, the contract owner, the option to exit the contract early without paying surrender penalties. Return of premium is available after the fourth contract, third or fourth contract year in most cases, sometimes it's the fifth. But if you got a ten year contract and you want to put a fee on it to give you an early out, so you will pay the fee. The problem is if you keep the contract through the term, then you have your accumulation value minus the cost of all those fees over time. Return a premium, put $100,000 in, roll it for five years. Don't like what it did, they're going to give you $100,000 back. So that's another one. But you pay a fee for that because the company's got to hedge themselves against selling bond portfolio early, all that stuff. Right. And finally, you got fees for enhanced performance.
This is on fixed index annuities only. Within a variable annuity, you'll pay fund management fees and all that stuff. But again, not necessarily about variable annuities. I got a whole section on variable annuities, wrote a big report a couple of years ago that covers everything in that.
But in a fixed index annuity, every contract has a list of index options available for you to allocate your premium. So a lot of contracts now offer higher growth potential on each of the index options for additional fee. So they say, oh, we'll give you a 10% cap rate with no fee, or if you let us take 1% out, we'll give you a 13% cap rate, but you're going to pay 1% fee to do it. That is an optional fee. So again, somebody that doesn't really know how to look at them, looks at it and says, oh, there's a fee on that. It's not the whole story. Someone decided to put that on there. Hopefully you did. And it wasn't just the agent putting something on there to maybe try to make it look better than it really is. I don't know. But you get an enhanced performance. So you have to decide, well, is the extra 1% worth. Now, a lot of these contracts, if you have the enhanced performance and you pay that fee at the end of the surrender term, they're going to look back and if the fee didn't result in higher performance, they'll refund the fees. So that's not all bad and some people really like doing it, but that's essentially in fixed index annuities. Fixed annuities. And most of these, honestly, the variable annuity fees and the riders are close, but that's the stuff you add to it. If you don't add any of those things, you don't pay fees with just about any product. So the enhanced performance is also called an allocation fee. Most of them are optional. There's a couple of them where companies will say, hey, we reserve the right to put an allocation fee on it. Stay away from those. You don't want to give the insurance company one more lever to pull to limit performance. Make sure, if you want enhanced performance fees, make sure they are optional so you can decide when and how to use them.
It's not going to be all the time. So anyway, this has been episode 116.
Annuity writers and fees, all about annuity fees, whatever you want to call it. If you want to make an appointment, talk about any annuity you're looking at, or look at a list of options to see how you can be benefited in retirement. Click the top right corner of any page on Annuitystraighttalk.com.
This has been Episode 116. My name is Brian Anderson. Thank you so much for joining me. As we build this out approaching the end of the year, I'm excited to get started on a new one and happy to help anytime you guys need it, just reach out, schedule that call and we'll get after it. You guys have a great week. I'll see you next week for episode 117. Okay, bye.
[00:12:09] Speaker A: You have been listening to annuity straight talk.
The preceding information is for informational and educational purposes only and does not represent tax, legal or investment advice.
The views expressed by guests on this program are their own and do not necessarily reflect the views of annoy, straight talk or its partners. No information presented today should be acted upon without meeting with a qualified and licensed professional.
It is important that you read all insurance contract disclosures carefully before making a purchase decision.
Guarantees are based on the financial strength and claims paying ability of the insurance company.
