The Fixed Costs of Variable Annuities

Financial concept about VARIABLE ANNUITIES question marks with phrase on the gray wall

By Todd Perry, CFP®, CIMA®, CPWA®
Private Wealth Advisor

Variable annuities (VA) are often marketed as a great retirement savings vehicle. What’s not to like about insurance benefits, subaccounts to invest in for long-term growth, and tax deferral? Well, as with most things in life, it comes at a cost.

Here are three things to look for in variable annuities to help determine if it’s right for your overall retirement portfolio.


When reviewing an annuity, ensure you understand the product’s total cost. Just because you can’t see the charges on the surface doesn’t mean they don’t exist. Multiple ongoing fees are inside the annuity wrapper, starting with mortality and administrative expenses. For variable policies, there are also fund costs inside of the policy that can add up to another 1%+. Add up all the charges, and you’ll likely be paying more than 3%. And, what if you want to cancel the policy early on? Surrender charges can vary from a few years to ten years in length, further limiting your flexibility.

Performance Issues

Most of the time, annuities will not perform as well as if you just held the same vehicle outside the annuity wrapper. Why is this? Most of the issues stem from point #1. If you’re getting charged 3%+, that’s a significant performance headwind that you’re going against. Variable annuities are insurance products and, as such, shouldn’t be thought of as a regular investing account.

Lack of Transparency

Usually, when an annuity product is sold, there’s never a full breakdown of all the costs involved. You’re given a 50+ page prospectus to take home and review. And, when you try and find the information you’re looking for, it’s almost impossible to uncover. Why not find an advisor that will break down all the costs you pay and then show you your return net of all fees?

Are annuities wrong for everybody? Of course not. They can and do have a fit in certain situations. My problem is the cost vs. value breakdown. If you were paying this much but receiving advice in all areas of your financial life, it’s one thing. But to pay all the costs inside of the product and then not receive any ongoing advice doesn’t seem like a fair deal. And, how do you know if an annuity has a fit unless you run a fully comprehensive financial plan that addresses retirement income, portfolio construction, taxes, and more?

When searching for an advisor, make sure you talk to one who is not incentivized by the products they sell. A fiduciary works in your best interest, whereas a broker is held to a lesser suitability standard. There’s a huge difference. Turn and run if someone starts the conversation with an annuity as a solution for everything.

For a complimentary annuity review, please give me a call. You may be surprised at what’s under the hood of most of these “investments.”

For more information, please visit our website at or contact us today at 810-229-6446.

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Advisory services offered through Executive Wealth Management, LLC a Registered Investment Advisor with the Securities and Exchange Commission. Reference to registration does not imply any particular level of qualification or skill. Securities offered by Registered Representatives through Private Client Services, Member FINRA/SIPC. Private Client Services and Executive Wealth Management are unaffiliated entities. Products and services available only to individuals residing in the United States.