Do Fixed Annuities Have Fees?

One of the most common criticisms of annuities is that they're loaded with fees.

But when it comes to fixed annuities, that's not necessarily true.

Many of the primary types of fixed annuities have no annual product fees at all. Others may have a fee only when you add an optional benefit, such as an Income Rider.

The important thing is to understand which type of annuity you're considering and separate three very different things: product fees, commissions, and fees charged by an advisor.

Key Takeaways

• Many fixed annuity types have no annual product fees.
• MYGAs, SPIAs, DIAs, and QLACs generally don't charge annual fees.
• Fixed Index Annuities generally don't have an annual fee unless an optional rider with a charge is added.
• Annuity commissions are typically built into the product rather than deducted directly from your premium.
• More complex annuity products can pay higher commissions.
• Be cautious about paying an additional ongoing advisory fee to manage a contractual fixed annuity guarantee.

Which Fixed Annuities Have Fees?

Let's separate the major fixed annuity types.

Multi-Year Guarantee Annuities

A Multi-Year Guarantee Annuity (MYGA) provides a guaranteed interest rate for a specific period.

There generally isn't an annual product fee associated with a MYGA.

You're putting money into a contract that guarantees a specified interest rate for a specified period, subject to the claims-paying ability of the issuing insurance company.

Single Premium Immediate Annuities

A Single Premium Immediate Annuity (SPIA) is designed primarily to provide income, including the option for guaranteed lifetime income.

SPIAs generally don't have annual product fees.

You provide a lump-sum premium to an insurance company in exchange for a contractual payment stream structured according to your needs.

Deferred Income Annuities

A Deferred Income Annuity (DIA) works similarly to an Immediate Annuity, except the income begins at a future date.

DIAs generally don't have annual product fees either.

Qualified Longevity Annuity Contracts

A Qualified Longevity Annuity Contract (QLAC) is a type of deferred income annuity designed for use with certain qualified retirement accounts.

QLACs generally don't charge an annual product fee.

Fixed Index Annuities

A Fixed Index Annuity (FIA) generally doesn't have an annual product fee by itself.

However, that can change if you add an optional rider.

When Does a Fixed Index Annuity Have a Fee?

One common reason for adding an optional rider to a Fixed Index Annuity is to establish guaranteed lifetime income.

That's typically done with an Income Rider.

An Income Rider can have an annual fee for the life of the policy.

If you're evaluating an FIA with an Income Rider, understand:

• the cost of the rider
• the contractual lifetime income it guarantees
• when that income can begin
• whether the rider accomplishes your specific retirement objective

The value of the rider should be judged by the contractual guarantee it provides.

Annuity Fees and Annuity Commissions Aren't the Same Thing

This distinction causes a lot of confusion.

A product may have no annual fee while still paying a commission to the licensed agent who sells it.

With fixed annuities, commissions are generally built into the economics of the product. They're typically paid by the insurance company rather than separately deducted from the premium you deposit.

If you put $100,000 into the annuity, you're not typically seeing a separate commission charge deducted from that $100,000.

Simpler Annuities Typically Pay Lower Commissions

The complexity of an annuity can affect how much commission is built into the product.

Straightforward products such as:

• SPIAs
• DIAs
• QLACs
• MYGAs

generally have lower built-in commissions than more complex products.

Fixed Index Annuities can be more complicated because they may involve caps, spreads, participation rates, bonuses, and optional riders. Those contracts can also carry higher commissions.

That doesn't automatically make an FIA a bad product. It means you should understand why it's being recommended and what contractual benefit you're actually purchasing.

Surrender Charges Are Different From Annual Fees

It's also important not to confuse a surrender charge with an annual product fee.

Many annuities have a surrender charge period.

If you withdraw more money than the contract allows during that period, a surrender charge may apply.

That's different from paying an annual fee simply for owning the contract.

Before purchasing any annuity, understand its liquidity provisions and surrender schedule.

Should You Pay an Advisor to Manage a Fixed Annuity?

Be cautious if someone wants to charge an ongoing advisory or wrap fee to "manage" a fixed annuity.

A contractual fixed annuity guarantee generally isn't something that requires ongoing investment management in the same way a portfolio of securities might.

If an advisor wants to charge you an additional annual percentage on top of a fixed annuity, ask exactly what service you're receiving for that fee.

That's especially important with straightforward contracts such as MYGAs, SPIAs, DIAs, and QLACs.

Don't Confuse Fees With Growth

Fees are only one part of evaluating an annuity.

You also need to understand what you're expecting the product to accomplish.

Fixed annuities are insurance contracts designed around contractual guarantees. They're not designed to replace a growth-oriented investment portfolio.

If your goal is market growth, market-based investments serve a different purpose.

If your goal is principal protection or guaranteed lifetime income, a fixed annuity may be worth evaluating.

Start With Your Retirement Objective

Before worrying about whether an annuity has a fee, determine why you're considering the annuity in the first place.

Annuities generally solve for four primary objectives using the PILL framework:

• Principal Protection
• Income for Life
• Legacy
• Long-Term Care

Once you know which objective you're trying to solve, you can compare the appropriate annuity types and determine whether any fees associated with those guarantees are reasonable.

Where to Compare Fixed Annuities

Use our annuity calculators to compare current contractual guarantees from multiple insurance companies.

For guaranteed accumulation, compare MYGA rates and terms. For lifetime income, compare the contractual payouts available from competing carriers and evaluate any rider costs as part of the overall guarantee.

The Bottom Line

So, do fixed annuities have fees?

Many don't.

MYGAs, SPIAs, DIAs, and QLACs generally have no annual product fees. Fixed Index Annuities generally don't either unless you attach an optional rider that carries a charge, such as certain Income Riders.

Commissions are a separate issue and are typically built into the product. And if someone wants to charge you an additional ongoing advisory fee to manage a contractual fixed annuity guarantee, make sure you understand exactly what you're paying for.

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