Should You Get Out of Your Annuity?

Hi, I'm Stan The Annuity Man, America's annuity agent, licensed in all 50 states. Today, we’re going to answer the question: Should you get out of your annuity? We’ll ensure you understand the best way to do that and whether it’s even possible.

Understanding Surrender Charges and Market Value Adjustments

Let's talk about surrender charges and market value adjustments, comparing them to other annuities. When an agent pitches you an annuity because of an upfront bonus and all these great things, I’m going to strip all of that away, tell you the truth, and help you make an informed decision. So, here we go.

One thing you need to consider when you own a Deferred Annuity is that there are surrender charges. Let’s be honest about surrender charges. Annuity companies have big buildings and logos on jets for a reason—they don’t give anything away. Surrender charges are typically very high and predatory. They lock you into that annuity. So, you and I have to make an excellent decision about the suitability and appropriateness of that annuity. You need to understand that you can't easily pivot and get out of it without paying a price. Typically, those surrender charges are high.

The Declining Nature of Surrender Charges

The other thing you need to know about surrender charges is that they decline over time. Let’s say you buy a five-year multi-year guaranteed annuity with a fixed rate. The surrender charges will scale down over time—maybe from 9%, 8%, 7%, 6%, 5%, etc. But just understand that when you buy a deferred annuity and lock in that surrender charge period, plan on staying there.

What Are Market Value Adjustments?

Now, let's talk about Market Value Adjustments. Many policies, particularly Multi-Year Guaranteed Annuities, have what's called a Market Value Adjustment (MVA). So, what does this mean? Here's the breakdown: If you buy an annuity and after that, rates go up, your surrender charges will also go up. If rates go down, surrender charges will go down. Don’t get caught in the weeds—remember that. That’s the essence of market value adjustments.

Should You Get Out of Your Annuity?

People often ask me, "Stan, should I get out of my annuity because I'm missing all these market moves and all these opportunities like finding the next Tesla or Apple?" If you’re looking for market growth, you shouldn't be in an annuity because annuities are contracts. In my opinion, annuities are not market products. If you want market growth, then stay in the stock market.

So, should you get out of your annuity? If you really want market growth, then maybe you should. If you have an Indexed Annuity and someone sold it to you saying, “You’ll get market upside with no downside,” and you realize it's more like a CD product, then maybe you should get out. Take the hit, move on, and invest it in the market.

Why You Should Stay in Your Annuity

Bottom line: I don’t care what annuity type you have, and I don’t care what the agent said, the back-tested numbers, or what the pitch was. If you're there for market growth, you shouldn’t be in an annuity. You should be in an annuity for the contractual guarantees. Always own it for what it will do, not what it might do.

Dealing with a Bad Agent or Carrier

Now, should you stay in your annuity if you hate the agent who sold it to you or don’t like how the carrier treated you? The answer is no. You bought the contractual guarantee, and you own it. You’re transferring the risk to the carrier to provide that guarantee. If the guarantee is intact, then you should stay.

Should You Transfer to a Better Annuity?

Next, should you transfer to a better annuity? And by the way, never ask that question to anyone but me, Stan The Annuity Man. Most agents will say, "Sure, let's transfer it." No, it's not that simple. If someone is offering an upfront bonus for transferring to their annuity, that’s not a better annuity. Never transfer for the bonus; in many cases, it’s illegal.

The bottom line is that if you’re transferring an annuity, the new one must be mathematically better than the one you’re leaving. During the application process, we’ll do a side-by-side comparison of your old annuity and your new annuity. If the new annuity isn’t better, you can’t transfer.

Also, when you buy an annuity with an Income Rider, it is really hard to transfer because the income rider from your old annuity isn’t transferable. So, when considering a transfer, make sure it’s in your favor, not the agent's. I can help with that analysis if you want me to review the annuities you currently own.

Income Riders: The Sales Pitch Problem

One of the great pitches at bad seminars is about Income Riders. An Income Rider is an attached benefit to a policy that provides a lifetime income stream. The problem is that many agents say, "I can get you 7% or 8%," but that's not exactly how it works. Draw a line down the middle of a blank sheet of paper: On one side, you have the accumulation value—whether it’s an Indexed or Variable Annuity. On the other hand, you have the Income Rider side.

The problem happens here: the agent says, "I can get you 7%." There’s no way an annuity company can offer you a 7% return when the 10-year treasury is paying less than 1%. That income growth percentage is only used to calculate your first income stream. You can’t cash it in, transfer it, or peel off the interest.

If it sounds too good to be true, it is, every single time. Income Riders are fantastic for future income pension plans, but you have to understand that they can only be used for income. You can't access the money, so don’t fall for the “7%” pitch.

The Transfer Process

Okay, so you're considering transferring your annuity. We’ve gone through the due diligence to make sure it’s in your best interest. If you're transferring from one annuity to another, there are two key considerations: what type of annuity you have and what type of account it’s in.

If it's a non-IRA account, you can use Section 1035 of the tax code for a non-taxable event transfer. This means that when you transfer from one annuity to another, the cost basis from your old annuity will transfer to the new one without triggering taxes. My team will make sure it’s a non-taxable event.

If it's in an IRA, you can transfer it from one annuity to another within the IRA. It’s also a non-taxable event; we’ll ensure the transfer happens smoothly.

Conclusion: Should You Get Out of Your Annuity?

Hopefully, this video has helped you. But I encourage you to go to The Annuity Man and schedule a one-on-one call with us. We’ll review your current annuity and give you the brutal facts about whether transferring is in your best interest. You can also run quotes and get my books for free. It’s all there.

Thanks for joining me today, and I’ll see you next time!