Page 136 - Ready Set Retire

Stephen J. Kelley

Next you have the subaccount expenses. These are the
expenses charged by the fund managers. Remember, variable
annuities are basically a few mutual funds wrapped in an
insurance contract. So far you are in for 3.31% just for base
charges. On our $250,000 annuity above, that’s now $82,750
skimmed off the top over 10 years. What do these charges buy
you? Are you any safer being in the annuity than you would be
in the market? Not at all. In fact you are much less safe as you
have had an automatic drain of $82,750 whether you make
money or lose money.

What about the riders? The argument could be made that the
reason you took out this contract was to have access to the
riders. So let’s look at how those work. Often there is a lot of
confusion about these riders and they are also often
misrepresented when sold.

This contract has two of the most common riders; the
guaranteed withdrawal income benefit (GWIB) rider and the
guaranteed death benefit (GDB) rider. This latter one is my
favorite because it shows just how misleading these contracts
can be.

Here’s how it works. The rider guarantees your beneficiary will
never receive less than your original amount of premium, less
any withdrawals, should you die. The cost of this rider is .79%

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