You maintain a certain annual variable annuity. Now you are forcing insurance agents and extra features a new mode of trading in the contract. Resist the hard sell: While brokers will pockets of fat commission, this annuity exchanges rarely a good deal for investors, according to many financial experts
That is, if you at a few years ago I bought your annuity even more so. You may lose has been established, because the stock market dropped valuable assurance during the recession. Moreover, in most cases, the new features will not be worth the cost you will incur additional time and your money will be locked.
Carolyn Wade, president for life of wealth planning and management firm in Alexandria, Virginia, said that if you only buy an annuity before the recession, and is a new cast, you will need to carefully compare both. “Overall, today’s products as good as they come back,” she said.
Variable annuities, which are sold by insurance companies, is a combination of tax-deferred savings and insurance. You invest in a mutual fund portfolio, grow tax-deferred for several years before beginning excavation assets. Payment will be based on growth-related investments.
In the fourth quarter of 2010, variable annuity sales of $ 37.6 billion, up increase of 18% over the same period in 2009, according to the Insured Retirement Institute. To promote the popularity of the “welfare”, which began in the early 21st century, providing annuities.
Many sales have generated a pension to another through the exchange of John Gannon, senior says these products guarantee a minimum amount of money you will be able to withdraw each year, as long as you live, invest in the Financial Industry Regulatory Authority Vice president’s education. Such transactions are known as exchange 1035, named tax law, so that you can switch to the new part of the insurance contract, without having to pay taxes on any investment gains original contract.
Because so much of the sales are based on the exchange, Gannon said, “I remind the user to ensure that it is in their favor” and not the agent. If you do an exchange, there is no money to look into your hands. If you sell the old pension, Use the proceeds to buy a new one, you will be taxed.
Sometimes it makes sense to consider exchanges, especially if you do not immediately need the money, you have the time, let you in the new pension investment growth. Perhaps your current annuity does not provide welfare, or the new annuity has a lower cost and better investment.
However, if you already have a welfare annuity and life, and you need to be especially careful in these two policies cost comparison function. After the stock market crash has shrunk insurance company investment company by raising fees, reducing the guarantee limit investment options and cut costs.
Mark Cortazzo, through a certified financial planner in Parsippany, New Jersey, use the following example to show how life might be different welfare policies. For example, a couple, two 55-year-old plans to retire within a decade, and in a variable annuity investment $ 500,000. With a pension proposed by Ohio National, the Guaranteed Income pot to double within a decade today. After ten years the annual minimum expenditure of spouses or surviving spouses receive a 5% – or $ 50,000 – even though the actual investment of more than a decade lose value. If the value of the investment income, expenses will be greater.
This contract require investors to invest at least 30% of the bonds. It may not make sense to buy the annuity if you have a better assurance or less restrictive of the old contract. Before the recession, as e-xample, ING sold annuities and guarantee the withdrawal of 7% per year, no investment restrictions.
Or maybe your current annuity allows you to take a one-time payment in a few years, Cortazzo said. To get this Ohio State product guarantee of 5% of the annual dividend, you have to keep your money for ten years, Cortazzo said. “A lot of offers in 2006 and 2007 products, I would like to have available,” he said. “You do not want to walk away from those.”
You also need to consider what might leave cash on the table. Let’s say your annuity allows you to recover 6% a year, regardless of how the investment target is to invest $ 100,000. If your account rose to $ 130,000 annuity lets you take 6% of $ 130,000 – or $ 7,800. If the account is denied, you can stillTo recover $ 7,800 per year.
But there may be a trap. If you decide to trade another annuity, you may end up only accept the current account value, rather than the original investment. If the $ 130,000 to $ 80,000, if you will only need to switch to $ 80,000. You will lose lucrative pay $ 7,800 per year.
Another reason to resist exchange: Most variable annuities impose surrender charges if you switch to cash or annuity within a certain period of time, sometimes as long as ten years. This fee can be as high as 9% of your mortgage, although it can be reduced each year.
If you still surrender within the time limit, you need to decide whether to pay its value to SW itch to another product. If you have completed the surrender period, you know, the new pension will start the clock ticking again. If you do not agree with the new surrender period ending think you need to extract cash before the transaction.
Review of the costs and characteristics
Be sure to compare the cost of the two products. One of the biggest charges of “mortality and expense” is responsible for the risk, the insurance company covers the costs bear the risk of. Such an operating fee of about 1.25%. Other costs include administrative fees and related expenses associated with the fund. Asked the agent commission. Annuity buyers in the total costs, excluding commissions to pay at least 2.5%.
If the new annuity has features that you find attractive, and see if you can add riders to your ex isting contract. This can be from a new surrender period you save may be cheaper than buying a new product. For example, you can request additional pension, which cost an average of 0.39% of the cost, according to Morningstar, or you can add a guaranteed minimum withdrawal or income function, in cost of 0.92%.
Asked the agent, if there is a cheaper way to get the new features you want. Let’s say you like the long-term care rider of new products. This feature will allow you to withdraw funds tax-free to pay long-term care services from an annuity. Instead, ask what it costs just to buy long term care insurance Gannon said.