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Author: michaelwmccloy Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 120826  
Subject: outliving your annuity Date: 11/17/2013 4:03 PM
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My mother's annuity matures on her 95th birthday, next year. She has not collected a dime from it since she initiated the policy in the 1990s. The annuity company has given her these options:take the $100,000 total value in cash (and lose 25 percent to taxes) or begin to take regular payments that are fixed at such a low amount that she would not be able to use the funds for major bills that are sure to come as her health declines.

Are there other alternatives?
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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 119547 of 120826
Subject: Re: outliving your annuity Date: 11/17/2013 4:59 PM
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What about fixed amount distributions? The distributions continue until the annuity is drained, but would allow her to distribute the income tax liability over multiple years.

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Author: BruceCM Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 119549 of 120826
Subject: Re: outliving your annuity Date: 11/18/2013 1:43 PM
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I assume you mean a deferred annuity...which actually isn't an annuity, as nothing has yet been annuitized. This is really a tax deferred savings plan....check that....an EXPENSIVE tax deferred savings plan.

What her options are will depend on the contract and state law, and these vary. Unless this "annuity" was held inside a tax deferred vehicle, such as a 403(b), a portion of it should be basis (the amounts she contributed to it over the years) and will not be taxed upon cash-out.

But as was mentioned, I would see if the contract offers a form of structured payouts rather than a lump sum. I can't imagine why the insurer would balk at this, as they will be able to continue to assess their exorbitant expenses on the undistributed balance. It may be that this is a state code.

And when you say the 'payments are fixed at such a low amount", what do you mean? Do you mean the payment it's self is small relative to the annuity's value, or that the interest rate used is very small? If the former, I can't image why, as the annuity payment should be based on her life expectancy, which would not be very many years, hence payments should be, I'd guess, about 10% of the annuity balance per year.

BruceM

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