Manage Your Annuity

One of the advantages of owning an annuity is that they are fairly tightly wrapped with all of the  pieces tucked in place so, it would seem, that there isn’t much to do after purchasing one.  After all, there’s a competitive fixed interest rate, a return of principal guarantee, a specific provision for withdrawals, and a tax code that says there are no current taxes due. So, what is there left to do?  Plenty.  Investing in an annuity is a smart decision as they offer several unique benefits, however, over time their benefits can be optimized with a more proactive approach to managing your annuity.

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Choosing the Right Annuity

Perhaps the most important decision that needs to be made is the annuity provider from which your annuity is purchased.  Managing an annuity is made much easier when you work with a company that provides superior customer services.  It is important to work with a company that has an excellent reputation for customer service as demonstrated through its responsiveness, availability – by phone and online, local presence, and willingness to educate its customers. 

Companies that are highly rated for the financial quality tend to be among the better providers of customer service.  While the quality level is sure to differ widely from one company to another, you’re more likely to experience better customer service from an AAA rated company than you are a BBB rated company. 

Selecting the Right Options

If the right decisions are made up front, there may be less to do in managing the annuity down the road.  Investment options, beneficiary designations, rider additions, are key decision points when purchasing an annuity.   The decision whether to lock in a 1 year interest rate or 5 years to be carefully considered.  Beneficiaries designations are not carved in stone, however, they should be set as if tomorrow is day they are to receive the benefits.

In other words, there may not be another chance to change them.  Some riders and contract options can only be added at the time of purchase, so it would be important to fully understand them.  It is strongly recommended that you work with a qualified insurance broker who can offer objective advice on all of these decisions.

Maximizing Your Return

Annuities with fixed interest rates usually offer them with a guaranteed time period. When the period expires, the rate will be adjusted and it could move up or down depending on the market conditions as well as the adjustment formula which should be detailed in the annuity contract.  Not only annuities perform the same and some providers may do a better job at managing their yields than others. 

If you find that your annuity rates have dropped farther than the prevailing market, or that there are higher yielding annuities available, you do have the option of transferring your annuity to another provider through a 1035 Exchange as provided by the IRC.   In some annuity contracts, if the rate drops below a minimum guaranteed rate, you will not be charged a surrender fee upon the transfer. Otherwise, you may incur surrender fees when you surrender your policy to transfer it to another provider.

Changing Beneficiaries

After annuity is purchased and beneficiaries are named, life happens, meaning that you may go through a number of life events that could impact the way you want your beneficiaries to be designated.  Changing spouses, adding children or step children, creating trusts, are all events that should prompt a review of your beneficiary designations.  Changes should be made immediately and reviewed periodically thereafter.

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Purchasing an annuity is a big decision. Online research is a good start, but prudent investors should discuss all their options and risks with an independent financial advisor. Request a free, no-obligation consultation today, along with a report of current rates on brand-name annuities.

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Taking Withdrawals

Annuities should be thought of as a long term investment. Things to come up and it may require accessing the cash values of your annuity contract.  While there is a provision in most annuities to allow withdrawals, it would be important to fully understand their associated costs.   Most annuities allow an amount of 10% of your accumulated values to be withdrawn without the imposition of a fee.  Any funds withdrawn in excess of 10% can be charged as much 15% if the withdrawal is made in the first year of the contract. These charges usually go away after a period of seven to 10 years. 

If you are able to keep your withdrawal within the 10% range, then a withdrawal may make sense.  Otherwise, the longer you can wait to withdraw amounts greater than 10% the less it will cost you. It is also important to keep in mind that early withdrawals (before 59 ½), are subject to ordinary income taxes, and possibly an IRS penalty assessment of 10%.  Certain hardship reasons can exempt a withdrawal from the penalty; however, taxes are still owed.

After age 59 ½ and, assuming the annuity contract is beyond the surrender fee period, withdrawals can be made freely with consideration for the fact that ordinary income taxes are due on the interest earnings which are withdrawn first.

Maximizing Income

Annuities are most prized for their ability to provide a secure, lifetime income stream.  To a great extent the annuity owner can dictate how much income is paid out.  Because annuity payments are based on the age of the annuitant and his or her life expectancy, the longer an annuitant is able to wait before drawing a guaranteed income, the higher the payout will be.  Even better, because the annuitant life expectancy will be shorter, the payout will include a higher proportion of principal which is not taxed.  To top it off, if the annuitant lives beyond his life expectancy, the insurer is obligated to continue with the higher payout for life. 


Managing your annuity may not be the most exciting aspect of your financial life, but it can make a significant difference in the level and quality of the benefits you and your family receives.  It certainly isn’t very difficult either. It does help to work with a trusted financial professional who can help you keep on top of things.  In any case, an annuity is best when managed not when it is neglected. 

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