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
Sort By:
Most Helpful
October 2016
67% of people found this answer helpful

Interesting scenario you have here. On the one hand, if you do collect $1,900 off of the $32K value (if I'm reading the situation correctly), then you have a very attractive distribution rate of almost 6%. On it's own, that seems like a pretty good signal to keep the policy. However, there are some other things you should probably consider. 

1.) Will that $1,900 continue to increase? Does that 5% guaranteed income benefit continue to grow post-annuitization? I would doubt it. If it does, is it growing 5% simple on the original balance or is it 5% compounded? If it's simple, then that 5% really isn't as attractive as it initially sounds. 

2.) What is your purpose for these dollars? Do you need the income from it or are you hoping to keep this growing? If you don't need the income it could make sense to liquidate the policy. 

The moral of the story is that financial planning is rarely black and white. Your scenario is very much one of those gray areas. 

Hope this helps!

October 2016
October 2016
October 2016
October 2016