Should You Get Out of an Annuity?
Hi, I'm Stan, The Annuity Man, America's Annuity agent® licensed in all 50 states. Should you get out of your annuity? We're going to cover that and talk about market value, adjustments, and surrender charges comparing to other annuities.
When the agent pitches you that you need to go to their annuity because an up-front bonus and all these great things, all these shiny things and all these wonderful pie in the sky, unicorn chasing the butterflies reasons to do it. I'm going to strip all of that out, tell you the truth so you can make an informed decision. Here we go.
One of the things that you need to consider when you own a deferred annuity, there's surrender charges. Let's be very honest about surrender charges. Annuity companies are set in big buildings for a reason. They have the logos on the jets for the reason, they don't give anything away. The bottom line with surrender charges is typically they're very predatory, they're very high, they're locking you into that annuity. You and I have to make a very good decision about the suitability and appropriateness of that annuity, meaning that you have to understand you can't really pivot and get out of it without paying a price. I mean, it typically those surrender charges are high.
Now, the other thing about surrender charges you need to know is they are declining. Let's just say you've got a five-year, multi-year guaranteed annuity, fixed rate annuity. They're going to scale down some of that, maybe 9, 8, 7, 6, 5 or something like that. Don't hold me to that. But just understand, when you buy a deferred annuity and you lock in that surrender charge period, plan on staying there. Market value adjustments, a lot of the policies that are out there right now, typically multi-year guaranteed annuities, fixed rate annuities have what's called a market value adjustment to the policy. What does that mean, Stan, The Annuity Man, America's Annuity agent? Strip it down to the basics, please.
If you buy an annuity and after you buy that annuity rates go up, your surrender charges will go up as well. The reverse is true. You buy an annuity, rates go down, surrender charges go down. Just remember that don't get caught in the weeds. People always ask me if they should I get out of their annuity because they’re missing all these market moves and all this opportunity and all this, finding the next Tesla and the next Apple and all the stuff? Well, if you're looking for market growth then you shouldn't be an annuity anyway because annuity is a contract.
Annuities Are Not Market Products
In my opinion, as the top agent out here and I've seen it, done it, lived it. Annuities are not market products, period. If you want to get market growth, then stay in the stock market. Which leads back to the original question, which is, should I get out of my annuity? If you really want market growth, then maybe you should. Maybe if you have an index annuity and someone's sold it to you and said, "Hey, you're going to get market upside with no downside." You found out that it's a CD product and you really want market growth then maybe you need to get out, just take the hit, move on and go invest it in the market.
Bottom line, what you need to remember, I don't care what annuity type it is and I don't care what the agent said. I don't care what the back tested number said. I don't care what the pitch said. If you're there for market growth, you shouldn't be in an annuity. Why should you be in an annuity? For the contractual guarantees. You should always own it for what it will do, not what it might do®. Should you get out of the annuity if you really hate that agent that sold it to you or you really don't like to carrier, you've call it into the carrier and you don't like how they've treated you? The answer is no.
You bought the contractual guarantee, you own the contractual guarantee. You're transferring the rest of that carrier to provide that contractual guarantee. If all that's intact, then you should stay. Should you transfer to a better annuity, by the way, never ask that question to anyone but Stan, The Annuity Man® because most agents say, “let's transfer it.” It's not that simple.
Number 1, if someone's saying you get an up-front bonus if you go to my annuity, that's not a better annuity. Never transfer for the bonus and a lot of places it's illegal, you should never do that. The bottom line with transferring one annuity to another is the annuity that you're going to has to be better mathematically than the one you're coming from. Now, during the application process, we have to do a side-by-side comparison of your old annuity and your hopeful new annuity. If the hopeful new annuity is not better than the old annuity, you cannot transfer it.
By the way, in the annuity world, when you buy an annuity with say, an income writer, those are really hard to transfer because the income writer of your old annuity is not transferable. I know I threw a lot at you, but the bottom line is, it has to be in your favor, not the agent's favor to transfer the annuity and I can do that analysis for you if you want me to take a look at the annuities you currently own.
Income riders are attached benefits to a policy that provide lifetime income stream. The problem with it from a sales pitch standpoint is a lot of people out there going, "I can get you some percent or I can get you eight percent." Remember how income riders work. Draw a line down the middle of a blank sheet of paper, accumulation value over here, which is the index option side or variable annuity mutual fund side, and over here is that income rider side. Now here's where the problem happens.
Don’t Fall for the Pitch
That the agent says, "Well, I'll get to seven percent." There's no genius at an annuity companies that can figure out how to get less than one percent on a 10-year treasury and then give you seven percent. That income growth percentage can only be used to calculate your first income stream. You can't cash it in. You can't transfer it. You can't peel off the interests. Jimmy Carter is not in office and neither are his interest rates. Think logically. I had people call me all the time going, "Stan just bought eight percent annuity." No, you didn't. You bought an income rider that guarantees eight percent growth while you're deferring, but you can't cash it in, you can't transfer it.
Use your noggin out there. If it sounds too good to be true it is every single time with annuities. Income riders are fantastic future income pension plans. But you have to understand that that's the only reason that they can be used is for income. You can't cash them in. Never forget that.
The next thing is this, if you don't know who the fool at the table is, it's you, don't let it be you. You're thinking about maybe getting out of your annuity and if it's suitable and appropriate, and we've gone through the due diligence of making sure that transferring from one annuities to another is in your best interests, not the agents because we can't have that. It's got to be in your best interests. There's two ways to do when it really comes down to what type of annuity you have and what type of account it's in. Let's just say it's in a non-IRA account.
If you're really bored out there, you can pick up the tax code, the big book, and flip to Section 1035. 1035 explains the non-taxable event. Let me say it again. Non-taxable event transfer from one annuity to another. Now you have to understand when you do that, the cost basis from your old annuity will transfer to the new annuity one but non-taxable event. My team's going to make sure it's a non-taxable event. It's not going to trigger any taxes.
Let's talk about IRA. Let's just say you have an annuity inside of an IRA and you're going to transfer, we've deemed it appropriate, you're going to transfer from one to the other non-taxable event and it will transfer from the IRA that you have to the IRA established at the annuity company that you choose. Should you get out of your annuity? Hopefully, this helped.
Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.