Question: I'm looking for more details about retirement annuities. Do they all have fees? My sister says that hers cost her nothing and they "gave" her $5,000 for putting in about $50,000. Do they do that? I keep hearing about large fees and hidden costs, but she said that she started with $110,000 and they haven't taken anything so far in the past 18 months. Has she been taken? Louise, AL

Answer: Yup Louise, she has been taken. All annuities have expenses. The individuals that sell them rarely disclose them. She bought a bonus annuity which gave her a 10% upfront bonus (5k) on her 50k. Believe me, there are plenty of penalties and fees.

She should ask the rep a few questions:

1. What is the annual contract charge?
2. What is the annual M&E (mortality expense) charge?
3. What is the internal cost/expense of the underlying investments she owns?
4. What would it cost her in surrender charges if she decided to cancel her contract?

Ask her to ask the rep what he/she earned in dollars and cents, and on a percentage basis in commissions when she bought it? You will be stunned at the answers. Fee deductions are NOT transparent transactions. She'd never see these and again they are very rarely ever disclosed.

Be sure to ask your advisor or annuity salesperson about other common annuity provisions such as: bailout provisions, surrender charges, annuity-driven contracts, owner-driven contracts, guaranteed death benefits, enhanced death benefits, exchange privileges, contract charges and fees, and his/her compensation/commission structure and how that affects the contingent deferred sales charge.

Bill’s Bottom-line: Every annuity contract has fees and expenses. Ask your advisor to quantify the fees for you in dollars and cents, and compare that to other investment alternatives. Do your homework before investing and do not be taken again!

Author's Bio: 

Bill Losey, CFP®, CSA, America's Retirement Strategist®, is the resident retirement planning expert for On the Money. He has been named one of America’s Top Financial Planners and is the author of Retire in a Weekend!. The Baby Boomer’s Guide to Making Work Optional. He also publishes Retirement Intelligence, a free weekly award-winning newsletter. Bill can be reached online at

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