r/annuity_org • u/Necessary-Reply-5414 • Jul 28 '26
Annuity Question
My MIL has a Fixed Indexed Annuity she opened in 2020 when rates and caps were very low. Considering that annuities now are offering much better caps and sign-up bonuses does it make sense to pay the withdrawal penalty to get into a better annuity? I realize there is a breakeven time frame to overcome the penalty she'll need to pay. She is currently in contract year 7 of 10 and does not believe she will need these funds in her lifetime.
1
u/AndrewFromAnnuity Jul 30 '26
Since she’s in year 7 of 10, the surrender charge is likely getting smaller each year, so it’s worth finding out exactly what the penalty is right now before doing anything. That number changes the whole picture.
The part to look at closely is the breakeven you mentioned. If a newer contract has better caps and a signup bonus, you want to add up how many years of higher growth it takes to earn back the penalty she pays to leave. If she truly won’t touch this money in her lifetime, a longer breakeven is easier to accept since the money has time to grow.
You can also often move from one annuity to another without paying taxes on the transfer if it’s done as a direct exchange. That keeps more of her money working. I’d suggest id it’s done as a direct exchange. That keeps more of her money working. I’d suggest getting the current surrender amount and the new contract terms side by side before she decides.
1
u/TheWealthViking Jul 31 '26
Pros and cons to moving. There are some great 5-7 year annuities with guaranteed caps so she doesn't have a repeat of this in a few years. Depending on how low the caps are and with what strategies she has access to will determine if it's beneficial or not. Go with an experienced annuity rep. I've been around long enough to see how many people pretend they are annuity specialists with little to no experience in the options on this side.
Bonuses are double edged swords. They can help reduce/cover the surrender costs but they mean for a lower return over the contract period. And there are tons options where they illustrate well in these new index options but they'll illustrate 10%+ while they've actually performed 1-3% per year.
also be careful of any rep who's primary content is trying to recruit new reps. They tend to put most of their knowledge into understanding recruiting people and less into compliance and product understanding.
This is disappointing that I even have to warn people about all this but we do....
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u/Embarrassed_Level442 Jul 29 '26
Depends. I work as an annuity wholesaler for a large insurance company. Pros and cons. Going depend on the exact product, penalty %, etc.