What Is a No-Load Annuity?
A no-load annuity is a type of retirement investment that charges lower fees and expenses than annuities usually entail. The monthly payments that the investor receives are based on the returns on the account, which is managed by the investor.
No-load annuities are not sold by commission-based brokers or planners because they do not pay a commission. They are sold directly by some financial institutions and insurance companies.
- A no-load annuity, by definition, has lower fees and costs than other similar investments.
- That means the investor must make his or her own decisions on how the money is invested, from a range of available choices.
- The monthly payment from the annuity may be fixed or may rise or fall with the value of the investments selected for the account.
Understanding the No-Load Annuity
Like any annuity, the no-load annuity is an investment that guarantees the payment of a sum of money on a regular basis. It is most often intended as an income supplement for a retiree.
If it is a fixed annuity, the amount received monthly is pre-determined and guaranteed. If it is variable, the payment may rise or fall with the value of the investments selected for the account.
No-load annuities are generally marketed directly by the insurance company that issues them, or by fee-based financial advisors.
How They Differ
Investors who purchase these contracts can expect a low level of customer service and financial advice. For this reason, they are probably most appropriate for people who understand the characteristics and uses of annuities and are confident that they can make all the decisions on their own. Investors in this type of annuity account choose their assets among the available sub-accounts.
Annuities are created and sold by financial institutions and insurance companies, which accept and invest funds from individuals and, at an established date, begin issuing a stream of payments based on the earnings that have accrued.
The period of time when an annuity is being funded and before payouts begin is referred to as the accumulation phase. Once payments begin, the contract is in the annuitization phase.
Fees and More Fees
Most annuities come with substantial fees, commissions, and restrictions compared with many other investments. Up to 3% or more per year may be charged.
In addition, if you want your money prematurely, surrender fees are typically as high as 7% of the amount invested in the early years. Investment company Fidelity has an online guide to the dizzying assortment of fees and costs associated with annuities.
Annuities are generally intended to provide an income supplement for retirees.
Some of the larger investment companies, including Vanguard, Fidelity, and Nationwide, offer no-load annuities that come with much lower fees and restrictions.
The downside is that you won't get much advice beyond how to open the account. That's fine if you're a savvy investor, but most people find annuities hard to understand with their various investment components and riders.
Tread carefully before you invest in a no-load annuity. You might do well to seek the advice of a fee-based financial planner before making a final decision.