Compare guarantees before transferring your annuity
If an agent finds out that you currently own an annuity, most will try to convince you to transfer to their “better” version and create another commission in the process. Is this a good idea? It’s important to know the reasons why that answer is almost always a resounding no.
Show me the numbers
Remember in the movie “Jerry McGuire” when Tom Cruise’s character said “Show me the money“? When considering transferring your annuity, you need to yell out “Show me the numbers!” Most states and carriers require within the application a side-by-side contractual comparison of your current annuity and the one you are transferring to. This applies to both IRA-to-IRA direct annuity transfers or IRS-approved 1035 annuity transfers with non-qualified money.
This side-by-side comparison has to mathematically favor you, not the agent.
Agent application tricks
If a shady agent knows that the side-by-side comparison won’t pass the “annuity sniff test,” then they will try to convince you to surrender your policy and have the money go to cash. The reason for this bad advice is there is no annuity comparison if you cashed in the contract.
I just received a call this week where a person surrendered four very good variable annuities (with excellent contractual guarantees) to cash in order to transfer to an indexed annuity. In this case, the agents should lose their license at a minimum.
Up-front bonus does not overcome surrender charges
Another mathematical non-starter is when the agent proposes that the up-front bonus you will receive from the new annuity will offset the surrender charges of your current annuity. This is the pure definition of “agent desperation,” and usually works only in the agent’s favor.
Most up-front bonuses are vested, and many only are only credited to the future-income guarantee, not the accumulation value. The bottom line is to never transfer your old annuity under this bonus strategy. Remember, buying an annuity for the up-front bonus is like buying a car for the flashy stereo system. Dumb move on both counts.
Game over if payments have started
If your current annuity has been “annuitized” (i.e., irrevocable payments started) or an attached income-rider benefit has been turned on, then tell the agent pitching a transfer to go away immediately.
Even though most income riders do not require annuitization to turn on the income stream, stopping the payments and transferring to another annuity doesn’t typically work in your favor.
Making lemonade with your current policy is OK
Remember that annuities should be used as contractually guaranteed transfer of risk strategies. If your current annuity is in place for future lifetime income guarantees, then it’s most likely in your best interest to access that benefit already in place.
Once again, it’s important to point out that with any annuity transfer, the side-by-side contractual comparison will tell you if the proposed move is in your favor. What I have found is that even though you might think your current annuity is a lemon, you will probably need to “make lemonade” from your policy’s contractual benefits initially purchased.
Designed for you to have to stay
Annuity companies have the big buildings for a reason. They designed deferred annuities, like variable and indexed, so that to access those yummy benefits that swayed you to buy it in the first place, you have to keep the policy. Those attached benefits do NOT transfer to another annuity, and typically have a higher dollar value than the accumulation amount that can be transferred.
The primary culprits in these transfer sales pitches are indexed annuity agents. Indexed annuities are the too-good-to-be-true pitched and overhyped products that were designed to produce CD-type (not market) returns, but are offered with attached high-income-rider percentages (i.e., income monopoly money) and enticing up-front bonuses. Bring your IQ to the table, and don’t fall for the dreams sold.
Please spare me with the one-in-a-million transfer case that had all the planets aligning themselves in perfect unicorn butterfly harmony. Annuity transfers do work if the side-by-side contractual comparison is in your mathematical favor. For example, transferring a fixed-rate annuity (MYGA) out of surrender charges to a higher contractual yielding Multi-Year Guarantee Annuity (fixed rate) is a no brainer.
In other words, you transfer it for what it “will do” not what it “might do,” and only if the new annuity is a contractually guaranteed upgrade.
Originally published 7.19.16 by MarketWatch.com – http://www.marketwatch.com/story/compare-guarantees-before-transferring-your-annuity-2016-07-19