Restructuring Your Annuity: 5 Key Reasons to Review and Upgrade Your Retirement Plan

If you already own an annuity, simply leaving it as is can be risky. Many people buy annuities and then forget about them, assuming they will work perfectly on their own. But annuities are complex contracts that can change in value and usefulness over time. Reviewing your annuity and considering a tax-free 1035 Exchange or getting a second opinion from a professional fiduciary advisor can make a big difference in your retirement security.

This article explains five important reasons why you should review and possibly restructure your annuity. It uses plain language and clear examples to help you understand how to improve your retirement income and protect your savings.

Lower Fees and Hidden Expenses

Older annuity contracts, especially variable annuities bought 10 or more years ago, often have high fees that reduce your returns. These fees can add up to more than 3% every year. They come from charges on investment options or extra features like guaranteed income riders that you might not need anymore.

For example, if you have $100,000 in an annuity with a 3% annual fee, you could be paying $3,000 a year just in fees. Over 10 years, that’s $30,000 lost to fees alone, not counting lost growth on that money.

A professional review can spot these fees and suggest ways to reduce them. Sometimes, moving your money to a newer annuity with lower fees can save you thousands and increase your monthly income.

Higher Payout Rates from New Contracts

Annuity payout rates depend on interest rates and market conditions when you buy the contract. If you bought a fixed annuity or a Multi-Year Guaranteed Annuity (MYGA) during a time when interest rates were low, your payout might be much lower than what’s available today.

For example, a MYGA bought five years ago might pay 2% interest, while new MYGAs could offer 4% or more. That difference can double your income from the same amount of money.

By using a 1035 Exchange, you can move your money from an old contract to a new one without paying taxes on the transfer. This can increase your monthly income and improve your retirement lifestyle.

Access to Your Money Without Penalties

Annuities often have surrender charges if you withdraw money early. These charges can last 5, 7, or even 10 years and can be as high as 10% of the amount withdrawn. After this period, the surrender charge drops to zero.

This zero-surrender-charge period is a key time to review your annuity. You can move your money to a better annuity, change your investment choices, or take out cash without penalties.

For example, if your annuity just passed its 7-year mark, you can now access your money freely. This gives you more control and flexibility to adjust your retirement plan as your needs change.

Moving to Long-Term Care Hybrid Annuities

Newer annuities offer options that combine retirement income with long-term care (LTC) benefits. These hybrid annuities provide money for your retirement and also help cover costs if you need long-term care, like nursing home care or home health services.

Thanks to the federal Pension Protection Act, you can use a tax-free 1035 Exchange to move money from a standard annuity into a hybrid LTC annuity. This can protect your savings from long-term care costs without losing tax advantages.

For example, if you worry about the high cost of care later in life, switching to a hybrid annuity can give you peace of mind and financial support when you need it most.

Protecting Your Principal and Reducing Market Risk

Variable annuities let you invest in the stock market, which can grow your money but also comes with risk. If you bought a variable annuity years ago, you might have been hoping for strong market returns. But market ups and downs can reduce your savings when you need them most.

If you want to protect your principal (the money you put in) from market losses, you can switch to a fixed annuity or a fixed indexed annuity. These contracts offer guaranteed principal protection while still giving some chance for growth.

For example, if you have $200,000 in a variable annuity and the market drops 20%, your account value could fall to $160,000. Moving to a fixed annuity can protect your $200,000 from losses while providing steady income.

Additional Benefits of Reviewing Your Annuity

Besides the five main reasons above, reviewing your annuity can also help you:

• Reduce the risk of carrier insolvency by moving to a financially stronger insurance company.

• Improve inheritance options so your heirs receive more of your savings.

• Adjust your annuity to better fit your current retirement goals and risk tolerance.

  
  

What to Do Next

If you own an annuity, don’t just let it run on autopilot. Here are some steps you can take:

• Get a professional review from a fiduciary advisor who works in your best interest.

• Ask about a tax-free 1035 Exchange to move your money to a better annuity.

• Check if your contract is out of the surrender charge period.

• Consider if newer annuities with LTC benefits or principal protection fit your needs.

• Compare fees and payout rates between your current annuity and newer options.

  
  

Taking these steps can improve your retirement income, reduce fees, and give you more control over your savings.

Your annuity is a tool for your retirement security. Keeping it updated and suited to your needs can make a big difference in how comfortable your retirement will be.

This article is for educational purposes only and does not provide financial advice. Please consult a licensed professional before making changes to your annuity or retirement plan.