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Vanguard Offering Annuity Access Marketplace
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Annuities often get a bad reputation because they can, at times, be very complicated and filled with fees. Like many financial products, they aren’t inherently bad for you but a few bad actors make the whole industry look a little shadier that it actually is. The most basic of annuities, known as immediate life annuities or income annuities, work like pensions, if you could buy into a pension. You pay an up front lump sum and receive regular payments for as long as you live. The bad part about annuities comes when you start getting more complicated, like variants of variable annuities, and throw in expensive fees.
I was a little surprised that Vanguard, my favorite mutual fund company, opened up Annuity Access, an annuity “marketplace.” They offer variable and fixed annuities with the promise that their fees will be as low as you expect from any Vanguard product. I haven’t done a lot of research into annuities but it seems as though Vanguard’s variable annuities are fairly cheap. There are no sales charges, no surrender charges, and their variable annuity’s annual costs are 75% less than the industry average, based on Morningstar’s July 2010 figures. Vanguard’s annual fees are 0.62% versus the average of 2.40%. (I only did a perfunctory look at the fees, if you’re planning on using this service I’d read into the fee schedule a little more just to be sure)
When you submit an application, they go out to several companies to get you a quote. In the beginning, you work with Vanguard (noncommissioned, licensed specialists). Once you’ve signed up for an annuity, you’ll work directly with the insurance company that you’ve chosen. The benefit of doing this is that you get the power of a larger brand, Vanguard, behind you when you get the quotes in the first place. They can negotiate better terms than you probably can on your own (or so they say).
As an aside, Fidelity has been doing this for quite some time. I always think it’s a good idea to get multiple quotes to get the best deal.
I’m not at the point where I’m considering annuities but if you are and you’re a Vanguard customer, I’d love to hear your thoughts on how those compare with other quotes you seen.
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The number 1 fear of seniors is running out of money. Single premium immediate pay annuities lower this possibility, especially to the extent they cover basic needs.
An important point is that full service registered investment advisory firms will typically not recommend them, despite being fiduciaries, because they take away from their managed investment assets.
How much you get depends on interest rates and how old you are. Take the inflation rider, especially if you are in your 60s. As suggested in the post shop around. Vanguard will likely get you the best terms but check AARP and Fidelity and Met Life as well.
Vanguard has sold annuities for a while. I guess the new thing here is that are working with multiple insurance companies to compare rates.