Vanguard Annuity: What You Need to Know

By Markets Fool.com

The Vanguard Group is well-known for providing low-cost investment options to investors. For those considering annuities, costs are an important factor, because many annuities have draconian fees that reduce their effectiveness as viable options for their purchasers. The Vanguard annuity program offers a selection of retirement annuity products tailored to your needs, including both fixed and variable annuities that feature low costs, competitive rates, and unbiased assistance from licensed specialists who are paid fixed compensation rather than working on commission. Below, we'll look more closely at Vanguard annuities.

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Image source: Vanguard.

What types of annuities does Vanguard offer?

At Vanguard, you'll find a full range of annuities. Income annuities are designed to maximize the amount of income you receive from your investment while also providing protection from longevity risk. With income annuities, you can choose payments that are guaranteed to last as long as you live, even if you live well beyond your projected life expectancy. You can also choose among single-premium immediate annuities, deferred income annuities, or so-called longevity insurance annuities that don't start paying out until well into your retirement years. Meanwhile, deferred variable annuities with a lifetime withdrawal benefit can give you steady income payments but also give you potential for growth that is nevertheless protected from the volatility of the stock market and of riskier investments.

Deferred variable annuities are also useful for long-term savers who don't have current income needs but are trying to grow their assets over time. Vanguard offers 17 different variable annuities that are tied to various asset classes and allocations, ranging from stock annuities in both U.S. and international stocks and featuring different sizes of companies, to balanced portfolios and annuities that track various bond markets. At the same time, if you want the predictability of guaranteed fixed-rate returns but don't need income currently, fixed deferred annuities let you choose the time period over which you want to lock up your money and then pays you a fixed return based on the term you choose.

Who's behind Vanguard annuities?

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Vanguard isn't an insurance company, but it works with insurance company partners to provide annuities to its customers. For its Vanguard Variable Annuity products, Vanguard works with Transamerica Premier Life Insurance Company and its related subsidiaries to provide the coverage under the variable annuity contracts offered to Vanguard customers.

For income annuities, Vanguard has a slightly different process. There, the Vanguard Annuity Access service under the financial services provider's Income Solutions platform allows customers to compare fixed income annuities from a wide range of different insurance companies. Investors can get quotes quickly, and they can then choose the coverage that best meets their needs. Vanguard works in collaboration with Hueler Investment Services to offer the Income Solutions platform.

What are the costs for Vanguard annuities?

What you'll pay for Vanguard annuities depends on the type of annuity you purchase. The Income Solutions platform for fixed annuities charges a one-time transaction fee equal to 2% of the purchase amount.

For the Vanguard Variable Annuity program, the average expense ratio is 0.54%, which is far less than the industry average of 2.24%, and actual fees for specific annuity choices range from 0.44% to 0.73%. However, riders can add to that expense amount. For instance, the Secure Income rider to provide guaranteed lifetime withdrawal benefits imposes an additional 1.2% annual fee. One of the best features is that the Vanguard Variable Annuity charges no sales loads or surrender charges, eliminating potential costs that many other annuity providers impose on their customers.

Vanguard annuities have some advantages over annuities offered by rivals, but they still aren't necessarily appropriate for everyone. Some people simply won't benefit from annuities in their financial plan at all. But for those for whom annuities can be helpful, Vanguard's annuity platform is worth a closer look.

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