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Reading between the lines a bit, it sounds like you may be talking about an annuity at General American and the penalties are really surrender charges.

Your first action should be to check with General American to see if your annuity contract has other investment options. Some will allow you simply to switch to something based on stocks or even an S&P Index option rather than the "fixed income" option you apparently have now. This switch may not require payment of surrender charges.

You need to clarify what your surrender charges are. Most decrease or are eliminated after some time frame. With this information and the expected return on your new investment, you can easily calculate how long it will take the new earnings stream to pay back your surrender charges. If less than 3 years, I would make the change. Otherwise, wait.

There is an Annuities board in the Speakers Corner board where you will find some of these issues discussed. There is something called at 1035 transfer that much like an IRA allows you to move your annuity from the present one to another one without paying tax penalties. Vanguard, Scudder, T Rowe Price, and Fidelity offer low fee/surrender charges annuities that may offer better performance.

An S&P Index fund averages a return of 12%. That would be Fools first choice for the investment option to look for in your future annuity.
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