Should I cash out my variable annuity to avoid high fees?

I have a variable annuity that has a GMDB and GMIB growing 5% annually. However, the fees are .85% for each guarantee as well as a $30 administrative fee. This year my cash value lost $1,000 due to performance and fees ($700). The annuity is now out of the surrender fee so I can cash it out. My investment was $26,000 in 2009. I'd still have made about $6,000 in the 7 1/2 years I've had the annuity. Should I cash it out and look for something with less fees? Or should I stick with it and start withdrawing $1,900 a year guaranteed? I'm currently 58 years old and retired.

Investing, Annuities
Answers
Sort By:
Most Helpful
October 2016
56% of people found this answer helpful

You are asking all the right questions now that you are out of the surrender charge period for this annuity  I'd need to look at the annuity as well as speak with you about the remainder of your personal finances and goals to offer specific advice.

However, here's some general advice for people in similar circumstances:

Your instincts are good to be questioning the value here. High fees coupled with mediocre investment performance often make annuities a bad deal. For a more detailed explanation of this, you can check out my perspective on annuities by visiting the attached link:

https://rowanfinancial.com/buy-annuity-7-reasons-look-leap/

With that said, we're in somewhat of a "spilled milk" situation here because you've endured the bad part of owning an annuity and now are entering the good phase, which is starting the guaranteed cash withdrawals. By my math, a $1,900 a year withdrawal on the current cash value of $32,000 is a decent 5.9% guaranteed return which is really pretty good in today's ultra-low interest rate environment.

For now I'd hang onto the annuity but think about unloading it in the future if:

1.) We have a MAJOR stock market correction of 40% or more and you can buy into stocks at a significant discount versus current levels.

2.) Interest rates significantly rise and better guaranteed options present themselves.

Good luck with this decision and I wish you the very best in your retirement!

With Kind Regards,

Dave

October 2016
October 2016
October 2016
October 2016