Annuities and costs

What to look for before buying an annuity.

Watch the full replay »


Other highlights from this webcast


Vanguard webcast library

TRANSCRIPT

Akweli Parker: I really want to take this question from Paul in Verona, Wisconsin, and he asks something that I think is on a lot of people’s minds. He wants to know, “Don’t most annuities charge excessively high fees?” What do you think?

Danielle Corey: So it’s a great question, and as you mentioned, it’s atop of a lot of folks’ minds. In fact, I think for the signup for this webcast, we asked people to just plug in one word that you associate with annuity. I think the number one word association was income, but a close second was costly, excessive fees, commissions, things of that nature. So definitely on a lot of people’s minds, and I think it’s fair for folks to be skeptical about the different charges that they might incur with an annuity.

And I think the first thing to cover is that the insurance costs associated with annuities do lead to higher fees than typically Vanguard clients are used to paying on a mutual fund, in an IRA, or a taxable account. The question is how high are the fees, and depending on the product, are those fees fair?

The fee structure can be very complex, so if you’re considering an annuity, it’s important to make sure you’re really understanding what you’re paying. Are there also going to be redemption fees or, in annuities, they’re called surrender fees that will keep you locked into—

Akweli Parker: That’s a pretty ominous name.

Danielle Corey: —that will keep you locked into a product. And at Vanguard, we don’t have surrender fees on our variable annuity, but a lot of products out there do. And then, you know, of course, there’s the commissions piece. It’s important to understand how the person that you’re working with is being compensated, and that when you do all of the cost analysis and all of the benefit analysis that you feel like the benefits outweigh the costs.

Important information

For more information about Vanguard funds or variable annuity products, visit vanguard.com to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information about the product are contained in the prospectus. Read and consider it carefully before investing.

All investing is subject to risk, including the possible loss of the money you invest.

This webcast is for educational purposes only and should not be viewed as an investment recommendation. We recommend that you consult a tax or financial advisor about your individual situation.

Product guarantees are subject to the claims-paying ability of the issuing insurance company.

The Vanguard Variable Annuity is a flexible-premium variable annuity issued by Transamerica Premier Life Insurance Company, Cedar Rapids, Iowa (NAIC No. 66281), and in New York State only, by Transamerica Financial Life Insurance Company, Harrison, New York (NAIC No. 70688). Form No. VVAP U 1101 (in Florida, Form No. VVAP U 1101 (FL), in Oregon, Form No. VVAP U 1101 (OR) (R), and in New York, VVA NY 0208(R13)). GLWB Rider Form No. RGMB 43 0811 (in Florida, RGMB 43 0811 (SI)(FL), RGMB 43 0811 (JT)(FL), in Oregon, RGMB 43 0811 (SI)(OR), RGMB 43 0811 (JT)(OR), and in New York, RGMB 43 0811 (SI)(NY) (REV), RGMB 43 0811 (JT)(NY) (REV)). Return of Premium Death Benefit Rider Form No. VVA RP 0811 (in Florida, VVA RP 0811 (FL), in Oregon, VVA RP 0811 (OR), and in New York, VVA RP 0811 (NY) (REV)), without agent representation. Policy and rider form numbers may vary by state and may not be available in all states. The Vanguard Group administers the Vanguard Variable Annuity for the issuer. The Vanguard Group, Transamerica Premier Life Insurance Company, and Transamerica Financial Life Insurance Company do not provide tax advice. Investors are encouraged to consult a tax advisor for information on how annuity taxation applies to their individual situations.

The Vanguard Variable Annuity has an average expense ratio of 0.52%, versus the annuity industry average of 2.26% (Source: Morningstar, Inc., as of December 2016); excludes fees for optional riders. Actual expense ratios for the Vanguard Variable Annuity range from 0.40% to 0.71%, depending on the investment allocation. The expense ratio includes an administrative fee of 0.10% and a mortality and expense risk fee of 0.19%. The expense ratio excludes additional fees that would apply if the Return of Premium death benefit rider or Secure Income (GLWB) rider is elected. In addition, contracts with balances under $25,000 are subject to a $25 annual maintenance fee.

© 2017 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corporation, Distributor.