While variable annuities generally have higher fees than other investment options, typically between 2% to 3% a year, they offer investors death benefit protection and guarantees not provided by other investment products -- including the guarantee that they won't outlive their income through optional riders or annuitization.
An annuity is a contract you purchase from an insurance company, designed for long-term investing. The values will fluctuate based on investment option performance. Annuities have restrictions and limitations, and fees and charges will vary based on the product. You may be charged a penalty if you take your money out early. Withdrawals may be subject to ordinary income taxes, and if you are under age 59½, you may pay a 10% federal tax penalty. Please remember that investing involves risk, including possible loss of principal. All guarantees and protections are subject to the claims-paying ability of the issuing insurance company.
Straight talk about fees and commission
Fees depend on the annuity product chosen. The following are charges or fees that can be applied to an annuity — along with an explanation of what you get in return. Be sure to talk with your advisor to understand which fees will apply to your annuity.
A closer look at commission
Financial advisors get paid on annuities in two ways:
The financial advisor is paid a commission by the insurance provider based on the dollar amount invested in each individual annuity contract.
Fee based annuity costs
The financial advisor is not paid a commission by the insurance company, but instead is paid a percentage of the premium (value of the account) which is deducted by the insurance company on an ongoing basis. This fee typically ranges between 1% and 3%.
Annuities are geared toward long-term retirement planning, so they come with a high surrender fee during a specified period of time (typically seven to 10 years). If money is withdrawn after this time period, there are no surrender fees.
The price for a guarantee
Insurance companies take on risk when issuing annuities. Longer surrender periods help mitigate that risk to pay for the guarantees that come with some annuities.
If a contract is annuitized*, the payments are set. That means investors are not able to withdraw any amount at any time. This is because set payments and a set schedule keep investors from outliving their income.
*Annuitization is a one-time process of taking your annuity account and turning it into regular payments that will last for the rest of your life. The annuitized payments continue, regardless of how long you live, even if the total payments exceed the original account value.
Customizing annuities allows for flexibility
There are a wide variety of annuity products and options, which can make understanding them difficult for investors. However, it’s the variety that allows investors the flexibility to customize the annuity to meet their individual needs.
When it comes to annuities, understanding fees is key, and Nationwide® is here to help you understand your investment and know the value of your options.
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