Just finished reviewing the Foolish sectionon annuities. and I have made a very unFoolish mistake. I was encouraged and purchased a variable annuity through SunAmerica, 4 years ago. What now....is it more Foolish to hold, sell and take losses on surrender charges and taxation as ordinary income..and reinvest in an index fund? I don't need the money, but I need better performance and less cost. Suggestions? Thanks
diannec, you asked:<< Just finished reviewing the Foolish sectionon annuities. and I have made a very unFoolish mistake. I was encouraged and purchased a variable annuity through SunAmerica, 4 years ago. What now....is it more Foolish to hold, sell and take losses on surrender charges and taxation as ordinary income..and reinvest in an index fund? I don't need the money, but I need better performance and less cost. Suggestions? >>For anyone to really be able to make appropriate reasonable suggestions, one should know the details about the rest of your assets as well as your short term and long-term objectives. A variable annuity is NOT inherently "bad". It just depends on what you're trying to accomplish with it. Note too that many of the things that's being written about annuities and their "high" expenses has become a little antiquated as for some time now insurance companies have been in competition and lowing their expense charges (though the expense charges are always going to be a LITTLE higher than what you find in a mutual fund). So, you probably should take a closer look at your options and the costs associated with them.Since you're probably still subject to a surrender charge, you might want to leave it there until there is none. At the same time, since you seem to be interested in an index fund, you might select the S&P 500 Index fund that's available in your annuity???? You certainly don't want to put any new money into it.
I did, too, a number of years ago. In the cold light of morning, I wish I hadn't, but it isn't the end of the world either. Although the expenses were not grossly high, they were more than I wanted to keep paying. As appears to be your case also, I had no compelling reason to cash out and eat all the penalties. Fortunately, I was able to do a direct annuity-to-annuity transfer without any financial penalty (these transfers have a number associated with them but I forget it). Whether or not you are able to do so at no cost depends on the surrender provisions of your present annuity contract. I found the lowest cost alternatives to be TIAA-CREF and Vanguard. (Vanguard has index funds available within the annuity; TIAA-CREF does not have a true index fund although their overall investment approach is somewhat indexy.) I would echo the advice not to put any new money into the annuity but if you can transfer the existing funds to a low cost annuity that has good fund choices, I see no reason to do anything drastic if you don't need the money now. I don't plan to ever annuitize the annuity; when the time comes I will manage the withdrawals myself. I will also use the funds in the annuity toward the beginning of retirement so as to deplete an account that has a relatively less favorable tax treatment for my heirs in favor of retaining funds longer in accounts that have a relatively more favorable tax treatment. (This goes against the wise advice to let your annuity continue to grow tax deferred as long as possible.)jtmitch
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