IRA investing in an annuity
Posted: 03 Nov 2008 22:14 Post subject: IRA investing in an annuity
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My father (age 66) recently retired and had participated in a 457 retirement plan. He met with an advisor a year ago (provided by the school system) who had him roll his money to an ‘IRA investing in an annuity’, which included a death benefit.
I asked the Advisor why she chose to invest in annuities (knowing the answer already), but she said this was how the school administration had previously invested, so it was the best thing for him to keep it as is.
My question is – what penalties or fees, if any, would he receive/have to pay if he dropped the annuity option or at this point is he better of staying with it? The value of his account has dropped $30,000 over the past year, but the Advisor told him that with the death benefit he was better off keeping things as is. Any thoughts or opinions? Thanks!
Permalink Submitted by Alan Spross on Mon, 2008-11-03 23:11
That’s one of the problems with annuities. It’s much easier to get into one than to get out. In many cases, you become a short term captive of the annuity until the surrender charges decrease. It would cost more to terminate the contract than to live with it for a time, and terminate later at a lower cost. Of course, you must also determine what other costs are being incurred beside surrender charges, and if they are high, terminating earlier may be worthwhile. With respect to the death benefit, the value of the additional benefit depends on his state of health, but you must admit that a death benefit serves as a form of insurance against bad investment performance.
Therefore, you would have to figure the actual costs of cashing out now vrs later vrs not at all.
Permalink Submitted by Al Fry on Tue, 2008-11-04 21:16
Godd point, Alan. If he would have invested in similar Mutual Funds instead of the annuity, he might only be down $29,000 instead of $30,000. I wonder how much the death benefit on the Mutual Funds would have been down?