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Deferred Annuity Cost
Deferred annuities are of two main types -- variable and fixed. A fixed annuity, which is comparable to bonds and CDs, differs from the variable one in that it involves higher risk and a much higher rate of interest over a stipulated period of 1 to 5 years. |
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Also, the initial investment amount eventually grows free of tax until withdrawal. Annuities are thus nothing but valuable retirement plans that enable an investor to secure his future by making provisions for regular income in his post-retirement life. But, nothing in this world comes for free!
The wide range of benefits offered by deferred annuities also involves certain costs to be paid by the investor. Majority of the costs can be attributed to the annuity insurance factors. However, these factors vary greatly from one sponsor to another. Insurance cost associated with deferred annuities is the most common among all the costs involved. The average cost of annuity insurance is nearly 1.25 percent, which includes both the agent’s commission and the price of guaranteed death benefits.
Other costs involve additional fees, like the contract fee, the administrative fee, and the management fee. One or all of these may be charged by the sponsor in lieu of generating reports and managing investments. The average management fee charged by most sponsors is nearly 1 percent. However, the most problematical cost associated with a deferred annuity is undeniably the surrender charge, which is applicable in case of early withdrawal of the initial investment amount. Most often, this extra fee starts at 7 percent and eventually phases out during the stipulated period of time. But, bear in mind that this 7 percent charge is over and above the 10 percent tax penalty levied by the government for withdrawal of the principal amount before the age of 59.5 years.
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Fixed Annuities Calculations
 Fixed annuity, a financial instrument that makes the initial investment grow free of tax over a stipulated period of time, is undeniably a safe investment opportunity involving low risk. It guarantees minimum rates of interest over time and is a good option for those willing to ensure regular income in post-retirement years. More..
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