February 28, 2025 • 18 mins
Are you considering an annuity for your retirement plan? Before diving in, it’s crucial to understand the hidden costs that might be lurking beneath the surface! In this enlightening episode, we unravel the complexities around annuity fees, providing you with a comprehensive understanding of what to look out for.
We begin by demystifying annuities, dissecting their layered fee structures and emphasizing the importance of knowing what comprises each cost. From surrender charges that penalize early withdrawals to administrative fees that cover the basic management of your policy, we expose the financial intricacies that can dictate your overall investment performance.
Diving deeper, we discuss the often-misunderstood mortality and expense risk fees that may come with additional riders or guarantees. These fees can significantly influence your financial outcomes and require careful consideration. We also touch on investment management fees unique to variable annuities and how these can inflate costs with numerous underlying investments. All these factors combine into what we refer to as the "parfait" of annuity expenses, where each layer contributes to your total investment cost.
We aim to equip you with insights that will not only bolster your financial knowledge but also make you a more informed investor in annuities. Tune in for an engaging discussion that challenges you to think critically about your investment choices. Don’t forget to subscribe, share your thoughts, and leave a review—we love hearing from you!
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Developing your financial bullshit sniffer one episode at a time.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Welcome to Bullshit on Stilts.
We're back for season two andlet's just say it's as popular
as a fart in a high-riseelevator.
We're still barking atfinancial fairy dust like a dog
and a mailman, and in thisseason we're serving up a fresh
batch of debunking financialsales tactics and ads you never
(00:23):
asked for, all while helping yousharpen your own bullshit
sniffers for those life-changingfinancial decisions.
So grab your favorite drink,bring your sense of humor and
don't forget your calculator.
Join us on our quest to exposethe financial shenanigans that
even your grandma would callbullshit on.
It's time to get sniffing.
Let's get after it.
(00:43):
Hello, hello, hello, hey.
Welcome back to Bullshit OnStilts.
I'm your host, kelly Aulo.
It's season two, which is kindof cool.
We're in our second episode ofseason two and, really starting
off season two, we decided totackle annuities around
developing your bullshit snifferwhen it comes to annuities.
(01:05):
Hey, they're pretty amazingsolutions or financial
instruments, and we talked a lotabout that in our first episode
.
This episode, we're going topull back the question that most
people want to know first andforemost, which is hey, what are
the costs when it comes toannuities?
As we dig a little deeper,there's really, I think, five
(01:39):
different fees that an annuitymay have, depending on the type
of annuity you are buying.
So fees and how do they show upin annuities?
So let's peel this onion backjust a little bit.
Those fees would be onesurrender charges, Two,
mortality and expense risk fees.
Speaker 4 (02:00):
It's actually mortality and risk expense, but
whatever.
Actually it's mortality riskand expense charge, but you know
, whatever, I believe thetechnically correct phrase is
mortality and expense risk.
Speaker 2 (02:13):
However, insurance companies may use slightly
different phrases like mortalityrisk and expense and even
mortality and risk expense andso on.
So read the small print.
Speaker 1 (02:25):
That is the correct answer.
Administrative fees is numberthree.
Investment management fees,number four, and then lastly,
rider fees, number five.
So five fees may showthemselves in an annuity
contract.
And let's kind of peel theonion back of each of these real
quick.
(02:45):
So one, when we're talkingabout surrender fees, see, an
annuity contract is an agreement, a legal binding agreement, and
with that you're going to givemoney to the insurance carrier
(03:08):
in exchange for them providingyou promises, guarantees and so
forth.
That surrender charge,otherwise known as a penalty,
typically gets charged if wetake our money out of the
annuity contract too early.
I'll give you a couple ofexamples.
Right, If I have a seven-yearpenalty phase, surrender phase,
(03:32):
I could have my first year ofowning that annuity.
If I had to take the money out,I might have to pay a 7%
surrender fee.
So I put $100,000 in.
Something happens, I got totake all $100,000 out.
Well, when I do that, I'm goingto pay, in this example, a 7%
penalty.
So $7,000 is going to be keptby the carrier and I'll get the
(03:54):
net remainder, or $93,000.
In year two let's say nothinghappened in year one we erase
that example.
We go to year two.
Let's say nothing happened inyear one, we erase that example,
we go to year two and in thisexample the penalty is now 6%
and that will decline all theway down to zero following the
seventh year of owning thatcontract.
(04:16):
So you always have to read thefine print.
But in general that surrenderfee tries to make sure that you
invest in the annuity and makeit a medium term investment as a
minimum, and that's where thisseven year surrender charge may
come from.
Speaker 3 (04:33):
OK.
Surrender fee periods arenormally years and the surrender
percentage declines over theyears until they reach zero,
over the years until they reachzero.
So a seven-year surrenderperiod might begin at 7%, then
6% and then 5%, all the way downto zero.
That's a good takeaway,actually.
Speaker 1 (04:58):
Now, surrender charges can be a wide variety of
them.
You can have surrender chargesas low as 3% for three years and
as high as 10%, 15% for 10 to15 years.
It just depends on the annuityand what the small print says,
definitely something you want toget your hands around, all
(05:22):
right.
So yeah, the next fee isadministrative fees.
So these are prettystraightforward.
They're pretty small.
It covers companies sending youstatements, reporting, maybe
simple management of the annuity, and they charge you.
You could see $25 a year, $50 ayear.
If it goes to a percentage,you're probably at 0.1, 0.2, 0.3
(05:47):
.
Not a huge charge, butnonetheless something to know.
Speaker 3 (05:52):
I like 0.1 to 0.3 percent a whole lot better than
the surrender fees that might be7 to 10 to 15 percent.
That's a no-brainer percent.
Speaker 1 (06:09):
That's a no brainer.
Next, item up on the feesassociated with annuities.
So mortality and risk expensefees, or M&E charges for
insurance carriers.
M&e charges are those charges acarrier will put in place
because they're on the otherside of this contract.
They're on the other sidepromising guaranteeing maybe a
income benefit for life as anexample, or maybe an enhanced
death benefit.
So it depends on the riders.
(06:32):
But often you'll see how manycharges when there is some kind
of an enhancement or rider inplace that increases the
insurance company's exposure todeath.
Two, when shit happens in lifeand uncertainty hits and all of
a sudden we pass awayunexpectedly, or what have you.
Mortality and risk expense.
They're kind of a sandwich.
They can be hefty, they couldbe upwards of one, one and a
(06:55):
half percent or more, dependingon the annuity.
Oh, by the way, they do existor can exist in all the
categories of annuities.
So you definitely want to readthe fine print.
If you have a death benefitrider, you may see a mortality
and risk expense.
If you have a guaranteedlifetime minimum income benefit
(07:16):
rider and all these other riders, you may whether it's a fixed
variable or an indexed annuityfind some mortality and risk
expenses in and part of yourannuity I feel like there may be
layers, like a breakfastparfait.
Speaker 5 (07:34):
You know, parfaits have layers.
Speaker 1 (07:35):
Yeah, parfait is probably a great, great example
of annuity fees, because you'reright, they do layer upon layer
upon layer and you, as aconsumer, someone that may own
an annuity maybe your parentsown annuities it's good to pull
back the cover and look at thoselayers.
Speaker 4 (07:57):
So trying to keep track of the parfait of fees.
So far you've listed surrenderfees, admin fees and mortality
and expense risk fees.
That's three of the five layersto our parfait.
If there were no other fees andI needed to get all of my money
out of the annuity, say withinthe first year of ownership, I
would be paying 7% surrender,0.1% admin fee and potentially
(08:21):
1% immortality and risk expensefees.
That's over 8% in fees and,like you said, if I keep the
annuity and don't surrender itearly, there is no surrender fee
.
You definitely don't want tosurrender the annuity early.
Speaker 1 (08:33):
You're exactly right.
And here's the deal.
We've only gone through threeof the five potential layers of
fees, so let's get after thenext couple and we'll wrap this
up.
Get after the next couple andwe'll wrap this up.
(08:58):
So the next fee we'll talkabout really has to do with
mostly variable annuities.
Now, while we're on thevariable annuity and yeah, there
is one more thing I want todiscuss it's an investment
management fee.
So remember what we talkedabout.
We compared the 401k plan tothe variable annuity, where in
the variable annuity, you caninvest money into essentially
investment funds underneath theannuity stocks, bonds, real
(09:22):
estate, oil and gas, preciousmetals, you name it.
There's all sorts of thingsthat you can invest underneath
that.
Well, each of those funds comewith their own cost to invest.
They can range from 0.1 or 2% ayear, all the way above 2%,
(09:42):
depending on the kind ofinvestments the fund is actually
investing in.
So it's kind of a wide openarea, but nonetheless an
additional fee when you'reinvesting your money into a
variable annuity contract.
Speaker 3 (09:58):
The variable annuities investment funds sound
like they can be a largeexpense.
I assume that I can choose anyof, or a combination of,
investment funds that mightallow me the opportunity to be
mindful of the investment feesbeing charged.
Speaker 1 (10:15):
And last but not least and this is the fee that
deals with being able to createmore flexibility, customizing
your annuity as you purchase it.
Speaker 3 (10:25):
Wait, wait, it's the rider fee.
Speaker 1 (10:28):
And it's the rider fee, and it's the rider fee.
Yes, nailed it, winning atLifeThings and riders can be
range in any amount, butcertainly, I would say, the
average rider out there.
Across all of them, feesprobably anywhere from 0.4% to
0.5 percent, all the way upwardsof one and a half percent.
(10:49):
So again, when you're layeringfees on top of the other, you
might find yourself all of asudden in this example of
variable annuity with fees ofthree plus percent if you add
all the bells and whistles andgee whiz, bangs.
Keep in mind, fees are okay solong as they can deliver a
(11:12):
measurable value to you.
So when we're looking at thefees, we want to understand what
they're charging and then we gointo well, how valuable is that
?
Speaker 6 (11:22):
Hi, I'm the cleaning guy.
Please don't complain about therestrooms.
I was just listening in thehallway and that's such a solid
point.
If I'm paying for something, Ineed to know what kind of value
I'm getting.
Cleaning guy, please don'tcomplain about the restrooms.
I was just listening in thehallway and that's such a solid
point.
If I'm paying for something, Ineed to know what kind of value
I'm getting from it.
Thanks for the chat.
I gotta get back to cleaning.
If you need me, I'll be in oneof the restrooms.
I can tell you this.
When cleaning the restrooms, Iwould fucking love one of those
guaranteed annuity riders,something along the lines of
(11:43):
guaranteed minimum amount ofnasty.
Gotta go Peace out.
Did he actually just sayguaranteed minimum amount of
nasty?
Speaker 1 (11:53):
Indeed guaranteed minimum amount of nasty.
That's funny.
That's funny shit, right thereman.
That's funny shit, right there,man.
Yeah, so one last thought aboutfees, expenses.
So you know we're looking atfees as they arrive or are
presented in the annuitycontract itself.
(12:14):
Right, there could be up tofive Maybe there's a new one
that I don't know about, butfive that typically are out
there.
In addition to that, how do thefees compare?
What's the average range offees around a fixed annuity?
And those are going to besomewhere anywhere from as low
as no fee to maybe upwards of ahalf of a percent per year.
(12:35):
Surrenders for a fixed annuitycould be anywhere from three
years upwards of 10 years,depending on how long that fixed
annuity guarantees you a rateof interest.
The next annuity, the fixedindexed annuity, is sort of a
moderate level in terms of fees,where fixed annuities are very
(12:55):
low in fees.
Indexed annuities, moderate infees, you might be looking at
anywhere from zero, once again,percent upwards of 1% annually
and depending, again, as werecall, depends on how, what
kind of riders we're adding tothat, it could be even higher
than 1%.
Lastly, the variable annuityhere is that one that across the
(13:18):
industry, when you add someincome benefits and so forth to
it, it's going to range anywherefrom two to 4%.
So nothing wrong with paying anexpense.
It's just a matter of makingsure that you're getting a
reasonable value back for thatexpenditure.
If not, maybe there's a bettermousetrap for your needs
(13:41):
purposes and timelines.
So I've been talking about value, and how do you measure value?
And I'm sure there's questionsout there saying, hey well, how
the hell do you do that with anannuity and what am I measuring?
So when we're looking at anannuity, it's an investment tool
(14:02):
, it's an instrument, right?
It's just being issued to us byan insurance company and, as a
result, it's issued with oftenpromises or guarantees as part
of the overall value proposition, let's call it.
So when you're being chargedfees, it's important to
understand what am I getting inreturn for the expenses.
(14:24):
In a vacuum, we just walkthrough five layers of fees,
what they are and what theranges of that fee or might be,
as well as how those fees applyto different annuities.
But what are we comparing?
The value, and we have tocompare that to an investment
account, whether it's your 401k,your IRA, whether it's a trust
(14:49):
account, whether it's anindividual brokerage account.
The point is you're comparingthe annuity as an investment
tool to just a pure investmentaccount, as an investment tool
Within the investment account.
Let's look at that.
Does it give me any guarantees?
No, not really.
It gives me opportunities, itgives me statistics.
It give, gives me statistics,probabilities, possibilities,
but there are no real guaranteeswith the investment account in
(15:11):
general, basic terms.
So, as a result, it may cost meless.
It may cost me a lot less thanmaybe an annuity does.
But what if that annuityguarantees me certain things?
What if it guarantees me,through a rider, the income for
the rest of my life, no matterhow badly I screw up the
investment component of theannuity?
(15:32):
What if that?
What if it says that if youhave a chronic illness, because
I bought a rider, I now have apromise, guarantee by the
carrier to do something if achronic illness befalls me now
or in my future, especially whenI'm in my retirement years?
So the value of what you'repaying for in the annuity,
(15:56):
what's that value?
There has to be a value toguaranteeing income for the rest
of your life over theopportunity in an investment
account to manage yourinvestments, to be able to both
grow, stay ahead of inflationand pay me the amount of income
I need for the rest of my life.
Those are large variableswithin the investment account.
(16:18):
Within the investment account,that's what I'm trying to get at
when it comes to how do Imeasure the value of the things
I'm being charged for within myannuity.
Speaker 5 (16:31):
So if I exclude the surrender fee, a reasonable
estimated fee might be 3%, plusthat includes admin at 0.2%, m&e
fees at call it 1% Investmentmanagement or enhanced index fee
for I guess 1%, and a rider feesay 1%, guaranteeing income for
(16:53):
life or something.
That seems like a lot.
Speaker 1 (16:56):
Yeah, that's how the numbers kind of boil down.
Each of those layers can addfees that cost you real money
year in and year out.
So over the last what 20minutes or so, we've hammered
the hell out of fees andhopefully you're getting your
hands around what those fees are, how they work and maybe some
(17:18):
of the fees you don't need topay for, depending on what
you're trying to accomplish withan annuity.
Hope this was helpful.
Thanks a lot for tuning in.
Remember our next episode.
We're going to pull back theonion on annuity riders, how to
customize them, and maybe startthinking about annuities from a
tactical and or strategicstandpoint.
(17:40):
Hey, take care of yourself.
We'll see you next time onBullshit on Stills.
Thanks for tuning in to anotherepisode of Bullshit on Stills.
We hope you enjoy season twoand find it as refreshingly
honest as ever, because whoneeds financial fluff when you
can have some facts?
Remember we're here to help younavigate through the financial
(18:02):
fog and come out the other sidewith a clear head.
A big thank you to our talentedcontent creators from
bensoundcom, upbeatio andpixabaycom, who make this
journey a little bit funkier.
Special shout out to AndreRossi's Funky Street and
upbeatio for providing thegroovy theme music that's been
(18:25):
setting the tone for our season.
Two adventures Got a topic youwant us to tackle or a financial
myth you're curious about?
Drop us a text and let us knowwhat's on your mind.
Until next time, keep yourdetectors on and your sniffers
down.
Welcome to Bullshit on Stilts.
We're back for season two andlet's just say it's as popular
as a fart in a high-riseelevator.
We're still barking atfinancial fairy dust like a dog
and a mailman, and in thisseason we're serving up a fresh
batch of debunking financialsales tactics and ads you never
(00:23):
asked for, all while helping yousharpen your own bullshit
sniffers for those life-changingfinancial decisions.
So grab your favorite drink,bring your sense of humor and
don't forget your calculator.
Join us on our quest to exposethe financial shenanigans that
even your grandma would callbullshit on.
It's time to get sniffing.
Let's get after it.
(00:43):
Hello, hello, hello, hey.
Welcome back to Bullshit OnStilts.
I'm your host, kelly Aulo.
It's season two, which is kindof cool.
We're in our second episode ofseason two and, really starting
off season two, we decided totackle annuities around
developing your bullshit snifferwhen it comes to annuities.
(01:05):
Hey, they're pretty amazingsolutions or financial
instruments, and we talked a lotabout that in our first episode
.
This episode, we're going topull back the question that most
people want to know first andforemost, which is hey, what are
the costs when it comes toannuities?
As we dig a little deeper,there's really, I think, five
(01:39):
different fees that an annuitymay have, depending on the type
of annuity you are buying.
So fees and how do they show upin annuities?
So let's peel this onion backjust a little bit.
Those fees would be onesurrender charges, Two,
mortality and expense risk fees.
Speaker 4 (02:00):
It's actually mortality and risk expense, but
whatever.
Actually it's mortality riskand expense charge, but you know
, whatever, I believe thetechnically correct phrase is
mortality and expense risk.
Speaker 2 (02:13):
However, insurance companies may use slightly
different phrases like mortalityrisk and expense and even
mortality and risk expense andso on.
So read the small print.
Speaker 1 (02:25):
That is the correct answer.
Administrative fees is numberthree.
Investment management fees,number four, and then lastly,
rider fees, number five.
So five fees may showthemselves in an annuity
contract.
And let's kind of peel theonion back of each of these real
quick.
(02:45):
So one, when we're talkingabout surrender fees, see, an
annuity contract is an agreement, a legal binding agreement, and
with that you're going to givemoney to the insurance carrier
(03:08):
in exchange for them providingyou promises, guarantees and so
forth.
That surrender charge,otherwise known as a penalty,
typically gets charged if wetake our money out of the
annuity contract too early.
I'll give you a couple ofexamples.
Right, If I have a seven-yearpenalty phase, surrender phase,
(03:32):
I could have my first year ofowning that annuity.
If I had to take the money out,I might have to pay a 7%
surrender fee.
So I put $100,000 in.
Something happens, I got totake all $100,000 out.
Well, when I do that, I'm goingto pay, in this example, a 7%
penalty.
So $7,000 is going to be keptby the carrier and I'll get the
(03:54):
net remainder, or $93,000.
In year two let's say nothinghappened in year one we erase
that example.
We go to year two.
Let's say nothing happened inyear one, we erase that example,
we go to year two and in thisexample the penalty is now 6%
and that will decline all theway down to zero following the
seventh year of owning thatcontract.
(04:16):
So you always have to read thefine print.
But in general that surrenderfee tries to make sure that you
invest in the annuity and makeit a medium term investment as a
minimum, and that's where thisseven year surrender charge may
come from.
Speaker 3 (04:33):
OK.
Surrender fee periods arenormally years and the surrender
percentage declines over theyears until they reach zero,
over the years until they reachzero.
So a seven-year surrenderperiod might begin at 7%, then
6% and then 5%, all the way downto zero.
That's a good takeaway,actually.
Speaker 1 (04:58):
Now, surrender charges can be a wide variety of
them.
You can have surrender chargesas low as 3% for three years and
as high as 10%, 15% for 10 to15 years.
It just depends on the annuityand what the small print says,
definitely something you want toget your hands around, all
(05:22):
right.
So yeah, the next fee isadministrative fees.
So these are prettystraightforward.
They're pretty small.
It covers companies sending youstatements, reporting, maybe
simple management of the annuity, and they charge you.
You could see $25 a year, $50 ayear.
If it goes to a percentage,you're probably at 0.1, 0.2, 0.3
(05:47):
.
Not a huge charge, butnonetheless something to know.
Speaker 3 (05:52):
I like 0.1 to 0.3 percent a whole lot better than
the surrender fees that might be7 to 10 to 15 percent.
That's a no-brainer percent.
Speaker 1 (06:09):
That's a no brainer.
Next, item up on the feesassociated with annuities.
So mortality and risk expensefees, or M&E charges for
insurance carriers.
M&e charges are those charges acarrier will put in place
because they're on the otherside of this contract.
They're on the other sidepromising guaranteeing maybe a
income benefit for life as anexample, or maybe an enhanced
death benefit.
So it depends on the riders.
(06:32):
But often you'll see how manycharges when there is some kind
of an enhancement or rider inplace that increases the
insurance company's exposure todeath.
Two, when shit happens in lifeand uncertainty hits and all of
a sudden we pass awayunexpectedly, or what have you.
Mortality and risk expense.
They're kind of a sandwich.
They can be hefty, they couldbe upwards of one, one and a
(06:55):
half percent or more, dependingon the annuity.
Oh, by the way, they do existor can exist in all the
categories of annuities.
So you definitely want to readthe fine print.
If you have a death benefitrider, you may see a mortality
and risk expense.
If you have a guaranteedlifetime minimum income benefit
(07:16):
rider and all these other riders, you may whether it's a fixed
variable or an indexed annuityfind some mortality and risk
expenses in and part of yourannuity I feel like there may be
layers, like a breakfastparfait.
Speaker 5 (07:34):
You know, parfaits have layers.
Speaker 1 (07:35):
Yeah, parfait is probably a great, great example
of annuity fees, because you'reright, they do layer upon layer
upon layer and you, as aconsumer, someone that may own
an annuity maybe your parentsown annuities it's good to pull
back the cover and look at thoselayers.
Speaker 4 (07:57):
So trying to keep track of the parfait of fees.
So far you've listed surrenderfees, admin fees and mortality
and expense risk fees.
That's three of the five layersto our parfait.
If there were no other fees andI needed to get all of my money
out of the annuity, say withinthe first year of ownership, I
would be paying 7% surrender,0.1% admin fee and potentially
(08:21):
1% immortality and risk expensefees.
That's over 8% in fees and,like you said, if I keep the
annuity and don't surrender itearly, there is no surrender fee
.
You definitely don't want tosurrender the annuity early.
Speaker 1 (08:33):
You're exactly right.
And here's the deal.
We've only gone through threeof the five potential layers of
fees, so let's get after thenext couple and we'll wrap this
up.
Get after the next couple andwe'll wrap this up.
(08:58):
So the next fee we'll talkabout really has to do with
mostly variable annuities.
Now, while we're on thevariable annuity and yeah, there
is one more thing I want todiscuss it's an investment
management fee.
So remember what we talkedabout.
We compared the 401k plan tothe variable annuity, where in
the variable annuity, you caninvest money into essentially
investment funds underneath theannuity stocks, bonds, real
(09:22):
estate, oil and gas, preciousmetals, you name it.
There's all sorts of thingsthat you can invest underneath
that.
Well, each of those funds comewith their own cost to invest.
They can range from 0.1 or 2% ayear, all the way above 2%,
(09:42):
depending on the kind ofinvestments the fund is actually
investing in.
So it's kind of a wide openarea, but nonetheless an
additional fee when you'reinvesting your money into a
variable annuity contract.
Speaker 3 (09:58):
The variable annuities investment funds sound
like they can be a largeexpense.
I assume that I can choose anyof, or a combination of,
investment funds that mightallow me the opportunity to be
mindful of the investment feesbeing charged.
Speaker 1 (10:15):
And last but not least and this is the fee that
deals with being able to createmore flexibility, customizing
your annuity as you purchase it.
Speaker 3 (10:25):
Wait, wait, it's the rider fee.
Speaker 1 (10:28):
And it's the rider fee, and it's the rider fee.
Yes, nailed it, winning atLifeThings and riders can be
range in any amount, butcertainly, I would say, the
average rider out there.
Across all of them, feesprobably anywhere from 0.4% to
0.5 percent, all the way upwardsof one and a half percent.
(10:49):
So again, when you're layeringfees on top of the other, you
might find yourself all of asudden in this example of
variable annuity with fees ofthree plus percent if you add
all the bells and whistles andgee whiz, bangs.
Keep in mind, fees are okay solong as they can deliver a
(11:12):
measurable value to you.
So when we're looking at thefees, we want to understand what
they're charging and then we gointo well, how valuable is that
?
Speaker 6 (11:22):
Hi, I'm the cleaning guy.
Please don't complain about therestrooms.
I was just listening in thehallway and that's such a solid
point.
If I'm paying for something, Ineed to know what kind of value
I'm getting.
Cleaning guy, please don'tcomplain about the restrooms.
I was just listening in thehallway and that's such a solid
point.
If I'm paying for something, Ineed to know what kind of value
I'm getting from it.
Thanks for the chat.
I gotta get back to cleaning.
If you need me, I'll be in oneof the restrooms.
I can tell you this.
When cleaning the restrooms, Iwould fucking love one of those
guaranteed annuity riders,something along the lines of
(11:43):
guaranteed minimum amount ofnasty.
Gotta go Peace out.
Did he actually just sayguaranteed minimum amount of
nasty?
Speaker 1 (11:53):
Indeed guaranteed minimum amount of nasty.
That's funny.
That's funny shit, right thereman.
That's funny shit, right there,man.
Yeah, so one last thought aboutfees, expenses.
So you know we're looking atfees as they arrive or are
presented in the annuitycontract itself.
(12:14):
Right, there could be up tofive Maybe there's a new one
that I don't know about, butfive that typically are out
there.
In addition to that, how do thefees compare?
What's the average range offees around a fixed annuity?
And those are going to besomewhere anywhere from as low
as no fee to maybe upwards of ahalf of a percent per year.
(12:35):
Surrenders for a fixed annuitycould be anywhere from three
years upwards of 10 years,depending on how long that fixed
annuity guarantees you a rateof interest.
The next annuity, the fixedindexed annuity, is sort of a
moderate level in terms of fees,where fixed annuities are very
(12:55):
low in fees.
Indexed annuities, moderate infees, you might be looking at
anywhere from zero, once again,percent upwards of 1% annually
and depending, again, as werecall, depends on how, what
kind of riders we're adding tothat, it could be even higher
than 1%.
Lastly, the variable annuityhere is that one that across the
(13:18):
industry, when you add someincome benefits and so forth to
it, it's going to range anywherefrom two to 4%.
So nothing wrong with paying anexpense.
It's just a matter of makingsure that you're getting a
reasonable value back for thatexpenditure.
If not, maybe there's a bettermousetrap for your needs
(13:41):
purposes and timelines.
So I've been talking about value, and how do you measure value?
And I'm sure there's questionsout there saying, hey well, how
the hell do you do that with anannuity and what am I measuring?
So when we're looking at anannuity, it's an investment tool
(14:02):
, it's an instrument, right?
It's just being issued to us byan insurance company and, as a
result, it's issued with oftenpromises or guarantees as part
of the overall value proposition, let's call it.
So when you're being chargedfees, it's important to
understand what am I getting inreturn for the expenses.
(14:24):
In a vacuum, we just walkthrough five layers of fees,
what they are and what theranges of that fee or might be,
as well as how those fees applyto different annuities.
But what are we comparing?
The value, and we have tocompare that to an investment
account, whether it's your 401k,your IRA, whether it's a trust
(14:49):
account, whether it's anindividual brokerage account.
The point is you're comparingthe annuity as an investment
tool to just a pure investmentaccount, as an investment tool
Within the investment account.
Let's look at that.
Does it give me any guarantees?
No, not really.
It gives me opportunities, itgives me statistics.
It give, gives me statistics,probabilities, possibilities,
but there are no real guaranteeswith the investment account in
(15:11):
general, basic terms.
So, as a result, it may cost meless.
It may cost me a lot less thanmaybe an annuity does.
But what if that annuityguarantees me certain things?
What if it guarantees me,through a rider, the income for
the rest of my life, no matterhow badly I screw up the
investment component of theannuity?
(15:32):
What if that?
What if it says that if youhave a chronic illness, because
I bought a rider, I now have apromise, guarantee by the
carrier to do something if achronic illness befalls me now
or in my future, especially whenI'm in my retirement years?
So the value of what you'repaying for in the annuity,
(15:56):
what's that value?
There has to be a value toguaranteeing income for the rest
of your life over theopportunity in an investment
account to manage yourinvestments, to be able to both
grow, stay ahead of inflationand pay me the amount of income
I need for the rest of my life.
Those are large variableswithin the investment account.
(16:18):
Within the investment account,that's what I'm trying to get at
when it comes to how do Imeasure the value of the things
I'm being charged for within myannuity.
Speaker 5 (16:31):
So if I exclude the surrender fee, a reasonable
estimated fee might be 3%, plusthat includes admin at 0.2%, m&e
fees at call it 1% Investmentmanagement or enhanced index fee
for I guess 1%, and a rider feesay 1%, guaranteeing income for
(16:53):
life or something.
That seems like a lot.
Speaker 1 (16:56):
Yeah, that's how the numbers kind of boil down.
Each of those layers can addfees that cost you real money
year in and year out.
So over the last what 20minutes or so, we've hammered
the hell out of fees andhopefully you're getting your
hands around what those fees are, how they work and maybe some
(17:18):
of the fees you don't need topay for, depending on what
you're trying to accomplish withan annuity.
Hope this was helpful.
Thanks a lot for tuning in.
Remember our next episode.
We're going to pull back theonion on annuity riders, how to
customize them, and maybe startthinking about annuities from a
tactical and or strategicstandpoint.
(17:40):
Hey, take care of yourself.
We'll see you next time onBullshit on Stills.
Thanks for tuning in to anotherepisode of Bullshit on Stills.
We hope you enjoy season twoand find it as refreshingly
honest as ever, because whoneeds financial fluff when you
can have some facts?
Remember we're here to help younavigate through the financial
(18:02):
fog and come out the other sidewith a clear head.
A big thank you to our talentedcontent creators from
bensoundcom, upbeatio andpixabaycom, who make this
journey a little bit funkier.
Special shout out to AndreRossi's Funky Street and
upbeatio for providing thegroovy theme music that's been
(18:25):
setting the tone for our season.
Two adventures Got a topic youwant us to tackle or a financial
myth you're curious about?
Drop us a text and let us knowwhat's on your mind.
Until next time, keep yourdetectors on and your sniffers
down.
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