So You Have an Annuity…

signed contract illustration

April 8, 2022

Those that know me, know that I’m not a fan of annuities and that’s putting it lightly. There are more reasons for that than this article has space, however I can summarize by saying I believe most annuities are sold and not bought.

So, what to do with the annuity you have… Firstly it’s important to know that the guarantee of income stream you purchase may need to be managed the same way a stock and bond portfolio does.

You’ll generally have an investment line up of funds not unlike a 401k plan. It’s important to review these funds for style, performance and fees just like any fund.

Additionally, and what I see as paramount to your success in owning an annuity is understanding your riders. If you’re not sure what that term means, pick up the phone and have your annuity company explain what they are. A rider in essence is an amendment to the annuity contract that either enhances or restricts the policy benefits. Knowing what riders are attached can be crucial to your ability to profit from your contract. Some contracts carry a step-up feature, which sounds great until you realize that if you don’t turn on the income you’ll have paid each year for a feature you didn’t use.

Know your annuitization date. Some contracts have an age limit and once you hit that date the contract can pay out the balance of the contract over a specified number of years. In some cases, the riders disappear when annuitization occurs. So, it crucial to know this.

Although I’ve never sold an annuity, I do have a number of clients that have them. I inherited quite a lot of them from an advisor who retired a handful of years ago. I went through a huge learning curve on the inner workings of annuities, so I do not blame anyone who owns one and doesn’t understand it fully. They can be very complicated. If you need help deciphering exactly what you own, that’s why we’re here. We believe we’re getting pretty good at it.

Mick Graham, CPM®, AIF® Branch Manager Raymond James Financial Advisor Melbourne, FL

Mick Graham, CPM®, AIF®

Branch Manager Raymond James

Financial Advisor Melbourne, FL

Any opinions are those of the author and not necessarily those of RJFS or Raymond James. Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. Mick Graham & Associates is not a registered broker/dealer and is independent of Raymond James Financial Services, Inc. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. It has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete. This information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.

With variable annuities, any withdrawals may be subject to income taxes and, prior to age 59 1/2, a 10% federal penalty tax may apply. Withdrawals from annuities will affect both the account value and the death benefit. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. An annual contingent deferred sales charge (CDSC) may apply.

A fixed annuity is a long-term, tax-deferred insurance contract designed for retirement. It allows you to create a fixed stream of income through a process called annuitization and also provides a fixed rate of return based on the terms of the contract. Fixed annuities have limitations. If you decide to take your money out early, you may face fees called surrender charges. Plus, if you’re not yet 59½, you may also have to pay an additional 10% tax penalty on top of ordinary income taxes. You should also know that a fixed annuity contains guarantees and protections that are subject to the issuing insurance company’s ability to pay for them.

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