No/Low Load Annuity

No/Low Load Annuity Services:


One of the major uncertainties of heading into retirement is the possibility of running out of money before we die.  Whether it is through Social Security, State Pensions, Corporate Pensions, or individually purchased guaranteed income, Annuities are a very important part of our security and retirement planning.  Unfortunately, there are many unscrupulous insurance companies that have made expensive annuity products and hired high pressure suave salesmen to push them, which has given annuities a bad name the last 20 years.  However, this does not change the underlying fact that most of like what basic annuities do and how they protect us.


What is an Annuity (VA):

An Annuity is a fixed or variable sum paid to someone over a specific period of time.  An annuity is not necessarily a financial product, however, contract law and intermediation has worked to create the standardized product that we know today.  Immediate annuities and deferred annuities

  • Immediate annuities are when an individual gives a lump sum to an insurer in return for an immediate series of payment over a negotiated period of time; often over their entire lifetime.
  • Deferred annuities are when the owner makes a series of payments into an annuity that will grow based on the contract term below until the owner decides to withdraw, transfer, or annuitize (turn into payments):
    • Fixed annuity – An insurance contract in which the insurance company makes fixed dollar payments to the annuitant for the term of the contract, usually until the annuitant dies. The insurance company guarantees both earnings and principal.1
    • Indexed annuity – A special class of annuities that yields returns on your contributions based on a specified equity-based index. These annuities can be purchased from an insurance company, and similar to other types of annuities, the terms and conditions associated with payouts will depend on what is stated in the original annuity contract.Insurance companies commonly offer a provision of a guaranteed minimum return with indexed annuities, so even if the stock index does poorly, the annuitant will have some of his downside risk of loss limited. However, it also is common for an annuitant’s yields to be somewhat lower than expected due to the combination of caps on the maximum amount of interest earned and fee-related deductions.1
    • Variable annuity – A class of annuity in which the owner may invest in subaccounts (like mutual funds), at his/her own risk, during the accumulation period after which the owner may annuitize per the contract’s terms at specified mortality figures and guaranteed rates.

1 Definition from Investopedia.


What are the benefits of an annuity?

Annuities are more expensive than investing in stocks, bonds, mutual funds and ETF so why do people use them.  Initially annuities where primarily used to provide guaranteed income, but as investing matured and more people participated, annuities evolved to offer investment opportunities in addition to their basic nature of providing income.  Here are some of the reasons why people elect to grow their money in deferred annuities:

  1. No transaction fees – Generally, most annuity contracts do not have transaction costs.  So, especially in VAs it makes it very efficient to be able to rebalance and make portfolio adjustments without increasing trading costs.
  2. Tax deferral – Annuities like other retirement vehicles have tax preferences.  In fact, even before Social Security people all over the world (even as far back as ancient Rome) used privately purchased annuities to create their own retirement incomes.  Tax deferral is an important benefit and also enhances the management/rebalancing effect mentioned above.  However, since the JGTRRA of 2003 reduced Capital Gains and Dividend rates this feature has diminished in it allure, but that is changing as tax rates are starting to climb again as of Fall 2014.
  3. Guaranteed mortality rates and income for life – An often over-looked benefit of annuities is that you may annuitize them, which is the whole reason they exist!  If the future continues to develop along the lines of the last 20-30 years then we may continue to see longer and longer life expectancies if this is the case then an annuity that you bought today that assumes you’ll live to 100 might be an excellent deal when in 30 years you annuitize and your actual life expectancy is 125.  This is one of the most important features of annuity; that it protects you from outliving your money (called longevity risk).

Why No/Low Load?

You don’t hear much about no load and low load annuities unless you work with a fee-only or fee-based advisor because most annuities are sold off of commission by proprietary brokers.  However, low/no load annuities are beginning to grow and pick up more of a following as fee-only/based advisors multiply and have many positive attributes, which counter-act many of the negatives investors have traditionally not liked in VAs:

  1. No commissions– These annuities do not have commissions and are not sold by proprietary brokers, which generally makes them less expensive and more competitive, .
  2. No surrender charges – Since there is no commission paid, which usually commits the insurer to an immediate loss, there are no surrender charges.  This gives the owner/investor more power to make sure the insurer lives up to their promises or they can simply withdraw/rollover their funds.
  3. Fee-based Advisors – Fee-based adivsors are fiduciaries to you, which means they have to look out for your best interests first.  They also do not take commission and make their money little by little as you do which align their interests with yours:
    1. To grow your money to as much as possible.
    2. To lose as little as possible during down-turns.
    3. And commit to good long-term service and management so that you do not fire them.
  4. Lower fees – As mentioned previously and illustrated below this combination of no load annuity and fee-only/base advisor can save considerable cost.

How we help our Full-Service Clients:

Evaluate the Need: Through our financial planning process we will help you to identify your need or opportunity.

Recommend the type of annuity, what riders to select, and how much to allocate: Through our analysis above we will help you determine how much you should allocate to your annuity and whether you should buy a fixed, indexed, or variable annuity.

Help to shop with client(s): Through our experience and industry contacts we will help you to identify which carrier will serve you best.  Remember we are the probably going to be the only person that is a fiduciary to you throughout this process so this is a very important/valuable service that we provide.

If you decide to purchase a VA then we will help to manage: Some of these policies are no/low load (all of the ones we use) which means they do not pay commissions and thus have lower internal cost structures and no surrender penalties.  With these type of policies we can manage them for you like any other account and they will be eligible for your household discount.

Variable Annuity Example:

Traditional Loaded VA:

  • Mortality, Expense, and & Other Charges (M&E&O) – 1.25%
  • Variable Investment Options – ~1.1%
  • Total On-going Cost = ~2.35%
    • You will have a 5-15yr surrender charge.
    • Many of these policies will not be serviced because the advisor/agent that sells them gets no on-going compensation (they are commission driven and the agent is incentivized to sell new policies rather than service the old).

VA with Jefferson National and rF Management: 

  • Mortality, Expense, and & Other Charges (M&E&O) – $200/yr.
  • Variable Investment Options – ~0.75%
  • rF Advisory Fee – ~0.8%
  • Total On-going Cost = ~1.6%/yr.
    • No surrender charges.
    • We are a fiduciary to you.
    • We have discretion to continually manage your investments.

VA with Ameritas and rF Management: 

  • Mortality, Expense, and & Other Charges (M&E&O) – 0.6%.
  • Variable Investment Options – ~0.75%
  • rF Advisory Fee – ~0.8%
  • Total On-going Cost = ~2.15%/yr.
    • No surrender charges.
    • We are a fiduciary to you.
    • We have discretion to continually manage your investments.

VA with TIAA CREF and rF Management: 

  • Mortality, Expense, and & Other Charges (M&E&O) – ~0.35% (0.1%-0.6% based on tenure and account balance).
  • Variable Investment Options – ~0.7%
  • rF Advisory Fee – ~0.8%
  • Total On-going Cost = ~1.85%/yr.
    • No surrender charges.
    • We are a fiduciary to you.
    • We have discretion to continually manage your investments.

*Note: There are lots of riders and benefits that may be added to variable annuities.  This comparison only compares the plain vanilla VA with a guaranteed minimum death benefit.

You may utilize our VA services by becoming an Asset Management or Full-Service Client: