Are there hidden costs with annuities that I should be aware of?
- Look for a no-load or low-load annuity contract. This indicates that there is no commission or a very low one. If, on the other hand, commission is paid via a front-end load, it can reduce the amount of your initial investment and your consequent returns.
- The money you invest in annuities should be funds you won’t need to access before maturity. If you do need to access your funds in the meantime, penalties, called surrender charges, can be significant during the first seven years. Penalties typically start at 7% and decline by 1% for each subsequent year. After 7 years, the surrender charges no longer apply.
- And of course, watch for excessive commissions, penalties and any other fees.