It is important that everyone understands what a fixed annuity can do for you. A fixed annuity is mostly preferred by many people because it is a very safe of safeguarding your retirement life. Because of the intensity, which comes with the plan, be it financial or time one need to plan well ahead of reaching their retirement age; it would be nice if one takes up an annuity plan ten or fifteen years before retirement age and while at it understanding the cost involved.
Surrender charge – when entering the fixed annuity contract the agreement is that for a certain period of time you are not supposed to withdraw or cancel out your annuity. If you breach this condition then you are liable to be charged a surrender charge, which varies from one state to another the lowest being 5%, and the highest being 25%. To avoid such a charge you will need to know that certain individuals or certain circumstances will not allow a person have an annuity. If you do not have any other kind of savings and you could find yourself withdrawing the annuity because of an emergency and thus the expensive charge. You could also be tempted to have a fixed annuity, so that you can use the proceeds to pay off your taxes. Please don’t, the law makes it clear that everyone under the age of 59 ½ years will be charged a tax of 10% on the principle if they withdraw their annuities before it matures especially in the early stages.
The insurance company will normally need some money to advertisement or marketing money to make the fund plus also to administrate it. These charges are called ‘the load’ and sometimes they could even go up to 3%. It is therefore important that when searching for an insurance company that will offer the best rates compare the load in relation to what you will earning. You could find that insurance is offering 8% interest rate but it has a load of $3 whereas there is a company offering 6% but the load is 1%. It obviously follows that the second company is better.
The following are the other charges on fixed annuity plans that you might be charged depending on which state you are in;
• Contract fee – the flat rate fee that you are charged every time you take up an annuity
• Percentage of net assets – This is a regular charge deducted from ones annuity’s current accumulated investment.
• Percentage of premium – Whenever you pay a premium this charge is automatically deducted; it can reduce as the years go by or when a certain number of years are reached.
• Premium Tax – You will realize that some states charge this tax on annuities. The responsible insurance company collects the tax by either adding it to your premiums or deducting it when you are receiving your payout or when you withdraw an annuity.
Finally you are always entitled to a free withdraw but that is dependent on the amount you want to withdraw.