What Does a Deferred Annuity Cost?

Deferred annuities are retirement investments offered by insurance companies. There are two phases to a deferred insurance annuity: the accumulation phase where deposits are made and the distribution phase where the money is take out of the account.

Deferred annuity costs can accumulate through both phases of this account, so it is important to understand deferred annuity costs over the life of the policy to ensure you get the best deal on a long-term savings account.

This article will review some of the basic costs associated with deferred annuities to help you become a savvy shopper of these insurance programs.

Deferred Annuity Costs during Contribution Phase


There are a number of deferred annuity costs that could be assessed by the insurance company during the contribution phase of the annuity. First, the policy holder could be subject to a standard insurance fee, which is typically equal to about 1.25 percent of the balance in the annuity. This charge goes directly to the insurance company and helps ensure death benefits on the policy. It is also applied to the commission of the insurance agent that sold you the deferred insurance annuity.

Management fees and administrative fees are also added into deferred annuity costs, at an average rate of around 1 percent. This fee pays for the tending of the retirement investments and the printing of reports to help you track your retirement investment portfolio.

Deferred Annuity Costs during Distribution Phase


One of the attractive features of a deferred insurance annuity is that taxes are not paid on the dollars going into the account until funds are withdrawn at retirement. For many people who will be in a lower tax bracket at the time of retirement, this deferred tax payment can save a tremendous amount of money on retirement investments over the long haul. However, not everyone can boast this status today, and if you end up in a higher tax bracket at retirement, you may find out too late that a deferred annuity costs too much to be worth your while.

Early withdrawal penalties can also eat away at the earnings potential of a retirement investment. If someone takes money out of a deferred annuity before turning the standard retirement age of 59 1/2, there is a 10 percent tax penalty assessed on the amount withdrawn. In addition, the amount withdrawn must be declared as income, resulting in even more deferred annuity costs if money is taken out prior to retirement age.

If you are looking for a way to save for retirement, early withdrawals should not be an issue. However, if a hardship situation arises and you need access to part of your money, you may have to pay the penalties for early withdrawal, which will make your final deferred annuity cost even higher.

Deferred insurance annuities are another option in the world of retirement account investments, but the cost of deferred annuities may be too big for some investors today. If you are interested in ensuring your retirement money goes into an account that is safe and profitable, weigh the cost of a deferred annuity against the benefits to find out if this account is the right choice for you.
Tim Ord
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