Page 182 - Ready Set Retire

Stephen J. Kelley

Think of the market as a powerful jet plane flying at 500 mph
into a 600 mph head wind. Yes it’s powerful, but how far are
you really going to go? Now, think of the annuity as a 300 mph
nonstop bullet train with no head wind to fight. Which will get
you there faster?

1. “THE FEES ARE TOO HIGH.”

That’s true, if we are discussing variable annuities, which most
brokers deal in. As mentioned before, these can run as high as
4% annually. However, with fixed annuities there are no fees
unless an extra benefit is added on. The insurance company
earns a spread between the gross of the bond portfolio’s yield,
which they manage, and the net is credited to your account.
This spread is similar to how banks make money and typically
ranges around 2% annually. From this spread the insurance
company pays the agent, covers the insurance company’s
expenses and returns a profit to its shareholders.

The difference is that a spread is not taken from your existing
account balance. So in a year where the annuity credits zero
growth due to a flat or declining market, the FIA owner gets a
true zero - not zero minus 2-3% in management fees, which is
what happens on brokerage accounts and variable annuities (or
even a loss minus 2-3%!), adding insult to injury!

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