How Much Is a Retirement Annuity?
Buying an annuity is a way that you can practically guarantee a certain amount of income during your retirement years. The size of your annuity payment will be based on many variables like the length of time you expect to receive payments and how much you paid in during the accumulation phase. When buying an annuity, it is also important to understand the different costs that come with it.
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Annuity Payments
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When you buy an annuity, you ultimately want to know how much you will be able to receive every month when you retire. The whole point of buying an annuity is so that you can have some stability during your retirement years. The size of your payment will be based on the return of your investments in the annuity. It will also be based on whether you choose to receive payments for the rest of your life or for a certain number of years.
Administration Expenses
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One of the fees that you will have to pay when getting an annuity is the administration fee. This is also referred to as the mortality and expense charge. This particular charge is designed to cover the administrative functions of the annuity. It also pays for the insurance component of the annuity contract. When you buy an annuity, it is guaranteed by the insurance company and this portion of the contract insures that you will have the money when you retire. This expense can vary greatly from 1 to 3 percent.
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Investment Expenses
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With some types of annuities, you are able to choose into which subaccounts you can put your money. This is most common when dealing with variable annuities. When you choose to put your money into various investments, you also have to pay a fee to the investment advisers. This is similar to the expense ratio that comes with investing in a mutual fund. This fee could be another 1 or 2 percent, depending on the company that you work with.
Cancelling the Annuity
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When you buy an annuity, it is designed to stay with you until you retire. If you decide to get out of the annuity contract, it could cost you a significant amount of money. The fees that you have to pay are known as surrender charges. Surrender charges are based on the total value of the account that you are cashing out. These charges start out high at the beginning and then gradually decline over the years. For example, you might pay an 8 percent surrender fee if you cancel the contract within the first year and a 1 percent fee if you cancel after eight years.
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