My partner and I were recently contacted to give a second opinion and explain a proposed annuity exchange to a confused consumer. If you have been contacted to exchange your annuity please contact us for a second opinion at Nina@montanalifegroup.com or Troy@montanalifegroup.com. We will be happy to evaluate your case and give an honest assessment of whether an exchange is in your best interest.
We’ll call him Don – and he contacted me on behalf of his mother to help him understand an annuity pitch his mother received to exchange her current annuity for a “new and improved” annuity. The annuity being presented was indeed good quality and on its own is a fantastic product. However, in this case it was not the right move for Don’s mom. We recommended that Don’s mom keep her current annuity and not make any change in strategy for a number of reasons.
Here’s what you need to consider if you own an older annuity and you are being contacted to exchange it for a new and improved annuity.
- Will this improve or increase my lifetime payout?
- Will I receive a bonus that outweighs any costs I might incur to switch?
- Will I receive other features that are more important to me now vs features of the annuity I currently have?
Will exchanging my annuity improve my lifetime payout?
If you have an annuity and the plan is to use it to create a “pension” or lifetime income, can the person asking you to switch PROVE to you that your payout with the new annuity will be higher? Some older annuities were issued when interest rates were higher and therefore pay more to the contract holder. New annuities can be from the best company in the business, but if the new annuity is issued in a low interest rate environment (like we are in right now) it will be tough to beat the real money payout of an older annuity. As a consumer the best question to ask? Show me the money; if the income payout is not higher, tell whoever is trying to get you to switch to go home.
Will I receive an annuity bonus that outweighs any costs I might incur to switch?
Bonuses are a very attractive annuity feature; they are designed to incentivize you to invest or to compensate you for something you may be giving up when you switch. Do not be fooled by a bonus. Ask whoever is offering you the new annuity to show you how the bonus factors into making the new contract the better contract and how it will pay you more in the long run. There is a saying, pay me now or pay me later, don’t get caught up in shiny “new” money in the form of a bonus that could cost you 10s of thousands of dollars in retirement income when you need it the most.
Will I receive other features that are more important to me now vs features of the annuity I currently have?
Maybe your needs have changed. Maybe you no longer want the highest lifetime income payout. Maybe you want some sort of Long Term Care or nursing home coverage (some newer annuities have built-in protections for this). Maybe now you don’t need the money and you want to maximize what you leave to your beneficiaries. These are all things to consider. Have the agent who is proposing the switch show you in real numbers before you switch annuities.
Annuities are great vehicles to preserve wealth and create pension income that cannot be outlived. However, in the hands of some possibly well-meaning agents who do not subscribe to the “first do no harm” philosophy, annuities can do damage and have therefore gotten a bad rap.
Anyone who tells you that annuities are categorically bad does not understand annuities and is speaking from sheer ignorance. Annuities are powerful tools to assist you when properly administered by an agent who cares about your needs first.
To learn more about how annuities can benefit you and your retirement strategy or for a free second opinion call or write us at 888-505-3822 or Nina@montanalifegroup.com.
1035 exchange
Important note: An exchange of funds from one annuity to another without taxable ramifications is known as a 1035 exchange.
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