I'm a teacher with about $10,000 in a fixed annuity paying only about 5%per annum. The surrender charge is 14%. Any formulas for figuring how long until I recoup my loss if I roll it over into another non-annuity retirement plan consisting of stocks? Thanks, mary
formula: (1.05) superscript x= .86 times (1+new annual return) superscript xsolve for xIf you assume an annual return of 10% in stocks, you are using 1.1 in the right side of the equation.With this relatively conservative assumption, I get a period of 3.24 years to recoup the loss vs 5% from the fixed annuity with a 14% "surrender charge"If you assume higher returns from stocks (like historical fool four rates or even Amazon like returns)the time to recover the loss will be shorter.
Mary - Sorry to learn of your situation... I work with many teachers who save pre-tax dollars with 403b accounts, many are TSA (tax sheltered annuities), but they're variable annuities which offer a wide variety of investment options (growth funds, international stock funds, bond funds, index funds) as well as a fixed-interest fund.Before taking a hit with surrender penalties, look into opening a new account that offers the other investments you seek & use your existing annuity's allowable withdrawal corridor (my company allows 10% penalty-free per year) to transfer funds (under Revenue Ruling 90-24 Direct Transfer) from your old 403b to the new one! Good luck! PP
Greetings, Mary, and welcome. You asked:<<I'm a teacher with about $10,000 in a fixed annuity paying only about 5%per annum. The surrender charge is 14%. Any formulas for figuring how long until I recoup my loss if I roll it over into another non-annuity retirement plan consisting of stocks?>>Ataloss gave you a great formula for determining your breakeven point for such a switch. OTOH, if working with exponents seems intimidating, you can always set up a spreadsheet comparison of $10K compounding at 5% per year (or 0.4167% per month) against $8.6K compounding at your estimated rate of return (divide by 12 to get the monthly rate). Either method will get you there.Regards….Pixy
mcley Date: 2/19/99 3:05 PM Number: 8660 I'm a teacher with about $10,000 in a fixed annuity paying only about 5%per annum. The surrender charge is 14%. Any formulas for figuring how long until I recoupThe $10,000 is a bookkeeping value, not to be taken too seriously. What you have is an investment that pays $500 per year. To make a fair comparison, let's look at moving it, changing to stocks, and withdrawing the growth every year, and ask how well it compares. Now the stocks are variable, and will even lose money some years, so this comparison is not strictly fair, and you need to remember that. But it doesn't take much faith to figure you can average 10% in stocks - the index fund approach has done better than that, on average, for as long as records exist. Read elsewhere on this site to learn about approaches that do even better.So my comparison calculation would be that you can withdraw the $10,000, pay the 14% surrender charge, resulting in $8,600, and make 10% on average, or $860 per year. So assuming the risk is something you can tolerate, I'd say you are ahead immediately.
Why don't you start by asking the insurance company that sold you the Fixed Interest Annuity if they offer a Variable Annuity & will allow a penalty-free 1035 exchange? This way you avoid penalties & can use more aggressive investment options? PP
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