1. Is This The Eye Of The Storm? 2. Poll: What Kind of Retiree Are You? 3. Is Your Financial Literacy Affecting Your Pla? 4. Review What You’re Actually Paying For Your Annuity 5. Ask Annex Video 6. “Learning never…” 7. Side Hustles: A Sign Of Struggle, Or Of Growing Wealth?

Markets closed up, led by small-caps this week. The NASDAQ is up over 20% this year. It may appear like we’ve averted a big dip, but some analysts wonder if we’re just experiencing the eye of the storm. Some think the consequences of rate hikes have yet to be seen. Annex Wealth Management’s Dave Spano and Jason Cooper discuss.

Who do you want to be in retirement?

In our workshop “Destination Retirement: Are We There Yet?” we ask attendees this exact question. There’s no “one size fits all” way of living in retirement, and we want to know who you are or plan to be!

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If you’re interested in learning more about who you’ll be in retirement, not to mention other important retirement information, there’s a workshop on April 12th at our Elm Grove office. We’d love for you to join us!



Review What You’re Actually Paying For Your Annuity

Do you own an annuity? If so, do you know what you’re paying for it?

In this week’s MoneyDo, we encourage you to discover what you’re actually paying for your annuity. 

Many annuities are highly complex financial instruments accompanied by lengthy paperwork detailing how they work and the spiderweb of fees potentially associated with them.  

Some modern annuities are just as complex, but curiously devoid of fees. Many such annuities have performance tied to market index returns, where the “cost” of the annuity is baked into the participation rates, spreads and caps which affect the return you ultimately receive. 

Craig McCann, a former economist for the Securities and Exchange Commission, built a computer model intended to calculate if an annuity is right for someone. He employed a dozen people with Ph.D.’s in math to “dissect indexed annuity products.” He said it took years for his team to master them[i]. 

Although it appears that investors have some exposure to the stock market, he says many are left with a return they could have achieved with a safe bond portfolio, without paying an obscured 2.5 to 3 percent annual fee charged by the annuity provider. “They are all Rube Goldberg machines,” he said[ii]. 

If you own an annuity, do your homework to determine how much you’re paying in fees. And if your annuity is completely free of fees, take the time to understand how the insurance company is getting paid – we assure you that they are. It’s important to understand that these fees aren’t always broken out clearly, and you might have to read deep into the fine print in order to get all the information you need on the annuity fees you’re paying, such as the following examples[iii]: 

  1. Administration and contract maintenance charges

Insurance companies have overhead costs they need to offset in order to offer annuities. Some annuities, therefore, include a specifically listed charge to maintain the policy, covering both the administrative costs of things like preparing regular statements and the ongoing expenses of monitoring the annuity contract. 

  1. Surrender charges

Sometimes you’ll see the term “contingent deferred sales charges” instead. Many annuity companies charge you a fee if you decide to back out of an annuity contract within a set period of time. The length of the surrender-fee period can differ, with some companies charging surrender fees for seven to ten years. Often, the surrender fee will go down over time, with the highest charge applying if you cancel your annuity very soon after purchasing it. Some annuities offer exemptions or partial withdrawals without a surrender fee, but with typical surrender charges amounting to several percent of the contract value, be absolutely sure you understand the long-term nature of annuities before you buy one. 

  1. Market Values Adjustment (MVA) 

Many newer annuities contain a feature which allows the insurance company to share interest rate risk with contract holders by using a Market Value Adjustment, often abbreviated as MVA. If your annuity features MVA, rising interest rates will potentially result in a decrease in the value of your annuity. Similarly, decreasing interest rates will potentially result in an increase in the value of your annuity. MVA will sometimes only apply during the surrender period. If you are considering purchasing an annuity which will be affected by MVA, it is important that you are aware of this and understand how it works. 

  1. Mortality and expense risk fees

Perhaps the most confusing annuity fee is the mortality and expense risk charge. The M&E fees compensate the insurance company for taking on the risk of getting its estimates of essential factors like life expectancy and its underlying overhead expenses wrong – and therefore, the insurance company may end up having to pay some of those costs out of its own profits. 

The M&E expense fee is often large enough to cover other expenses as well, such as sales and marketing fees, and generate profit for the insurance company.  

In fact, M&E fees are often the key reason annuity fees are higher than those for mutual funds with similar investments. Annuities do have some features that mutual funds don’t, but many annuity owners never end up taking advantage of all of them, making it questionable whether they’re getting their money’s worth for the extra money they’re spending. 

  1. Underlying investment expenses

Annuities often invest in pooled investments, which are similar to mutual funds. These investments have expenses of their own, which annuity sellers will pass on to their policyholders. Specifically, annuity owners can end up paying added expenses for mutual fund management as well as marketing and distribution fees that the fund company incurs. 

Like the mortality and expense risk fee, underlying investment fees are expressed as a percentage of the amount you have invested, and they’re charged on an annual basis, representing an ongoing drain on your investment capital. 

  1. Rider fees

Many annuities offer additional optional features, which are sometimes called riders. These add-ons can give you attractive benefits, such as guarantees of minimum levels of income or death benefits. Typically, though, you’ll have to pay an extra fee in order to take advantage of these optional guarantees. 

Riders also change and can limit what you are invested in. Your investment in equities or stock-like investments may be limited to a cap, such as 60%. You may be required to use model portfolios or “managed-volatility” funds, which may not be the ideal investment option in your specific situation. 

  1. Commissions

When you buy an annuity through a broker, you may pay a commission. A typical up-front commission can range from 5% to 10% depending on the product (the longer the surrender period, the higher the commission typically will be). 

As you can see, there are a lot of terms and fees you’ll have to keep your eyes on as you review your annuity. If you’re having trouble determining how much you’re paying, find an advisor you can trust – preferably one who is a fee-only fiduciary all the time – who can help you read and understand your contract. 


Annex Wealth Management’s Sarah Kyle, Matt Morzy, CFP® and Tania Sinha, CPA answer several Ask Annex questions:

“What are some red flags that trigger IRS audits?”

“What is education credit? Can I claim it even if I pay for my kid’s college tuition through a 529?”

“Does it make sense to switch my 401(k) contributions to Roth or wait until I’m retired to convert what I have?”

“Any comment on the survey that reported nearly 60% of institutional investors said they’ve used Reddit for investment decisions?” 

Do you have a question for Annex Wealth Management? Drop it here: annexwealth.com/ask