Navigating Equity-Indexed Annuities: Avoiding Hidden Costs

An equity-indexed annuity is a type of retirement investment that allows you to benefit from the performance of a financial index without the risk of an index fund. Some of these investments can be very expensive with all of the different costs that they have. Here are a few things to consider about avoiding a high-cost equity-indexed annuity.

Margin

Many of these equity-indexed annuities charge a margin. The margin is a percentage that the annuity provider is going to keep from the performance of the financial index. For example, let's say that the annuity provider is charging you a 2 percent margin. If the financial index brought back an 8 percent return for the year, you would actually earn only 6 percent after the margin was taken out.

Up-front Fees

Sometimes an equity-indexed annuity is going to charge you up-front fees as well. These fees will be taken directly out of your premium payments instead of being taken out on the back end.

Avoiding the Costs

Before you sign up for an equity-indexed annuity, it is important that you thoroughly review the annuity contract. Ask your insurance agent to give you a copy of the documents so that you can review the fees before you agree.