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I have a variable annuity with a rider guaranteeing 5%

interest (about 3% fees). It...
I have a variable annuity with a rider guaranteeing 5% interest (about 3% fees). It will never drop below the highest amount in the account. I am a year past the 7 yrs on it as I have it as an IRA and was planning on using it long term for monthly income. I am being offered a fixed index annuity (10 yr) with an automatic 15% interest that I can take out after 10 yrs or let it also be monthly income and this one will continue to grow even after I start taking money, no fees. I have one advisor telling me one thing and the other telling me something else and now just feel dizzy. The current annuity has about 158k in it. How do I figure out which is best for me. I am just not a financial person other than knowing how to save money. Most of my money is with a group who doesn't understand that I do not want to be in high volatility and am 5 1/2 yrs from retirement. He has told me to ignore the rule of 100 where I should have 61% of my money in safe accounts. I don't know how to get an answer that is good for me and not other people.
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1/23/2018
Chad EA, CFP ®
Chad EA, CFP ®, CERTIFIED FINANCIAL PLANNER TM, Professional
Category: Finance
Satisfied Customers: 1,408
Experience: Federally licensed IRS Enrolled Agent, Certified Financial Planner (R), MBA
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Hi Nancy,

My name is***** can assist you in making a decision.

If you are a year past the 7th year then you are out of the surrender period, which mean you have no penalty if you withdrew all of your funds. You don't necessarily have to change to a new annuity.

Are you comfortable with your current annuity?

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If you are 5 1/2 years from retirement then a variable annuity with certain guarantees will generally be a better fit for you then a fixed annuity.

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Generally Variable annuities will "step up" in value annually and "reset" to a higher value.

The current interest rate environment is that rates are increasing, slowly. Given the overall market currently and the benefits with variable annuities vs. fixed annuities and given your investment time horizon, I would suggest you either keep what you have or exchange your VA for another variable annuity.

___

If I had to make the decision given the information you have provided, I would keep the current policy you have.

Please let me know your follow up questions.

Thank you!

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Customer reply replied 1 month ago
I would get a 15% increase if I change to this other one, automatically. It also increases after you start taking money out where the one I have does not unless you take less than the 5%. It's just that each person is telling me their product is better than the others. How do I know?
Also, At my age, I also cannot afford to lose if the stock market goes down a lot like in 08 and it took forever for me to regain. I don't want to be greedy but having more money is always good in retirement. What do you think about the rule of 100?

I understand what you are going through. Variable and fixed annuities are very difficult and each one involves a separate contract.

What are the insurance companies that the annuities are back by?i

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The benefit of a variable annuity is your locked in and if the market goes down in value, your annual step up value is perserved.

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You have to plan for inflation and if you are 5 years away from retirement your funds have to keep up with inflation.

I am a Certified Financial Planner and have been an advisor for a long time. I have not heard of the rule of 100.

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I did look up the "rule of 100." I don't recommend using the rule of 100.

The basis for your decision should be your projected standard of living while you are in retirement and your income from sources such as pension, SS and your investments.

Then you may decide if you "need" your investment to produce a certain amount of return

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Customer reply replied 1 month ago
Thanks. My investments are all doing fine. I am on track and my adviser wants to be sure there is extra. The annuity I currently have is no longer available but it was with MetLife (Brighthouse). The other one that I don't have is Allianz. There is also the possibility of keeping the one where it is and transferring from my 401k or MM to the new one. But I have family members telling me NOT to do annuities and I've listened to Fishers with Forbes. I don't know why annuities are so hated... I know it's insurance but so is Soc Security.

Allianz is a good company. I would have no problem with that selection. Metlife is (of course) a great company too. Both firms offer good variable and fix annuity products.

I think annuities are hated because the riders aren't free. Annuities do have higher internal charges, which is in exchange for the guarantees.

From my perspective, if you are not comfortable with market fluctuation, getting close to retirement and still have a long life to live then a variable annuity may be a good fit for you.

Before you put your 401K into an annuity, just ensure you won't have possible liquidity problems. Generally, you want a reserve you can access for emergencies without having to pay a penalty.

Please let me know your thoughts!

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Customer reply replied 1 month ago
I agree. I would not put all of it into an annuity, just some. I definitely want use to be able to have easy access to my money as I need it. Also, I could always take the full amount at maturity...Now I have to learn about capital gains....some other day. I can always put more into my variable annuity if I wanted to, I think...maybe not now. I was drawn by the 15% bonus on the Allianz. I have enough investments elsewhere to be able to leave money for 10 yrs in Allianz. You are totally right though about the step up value being preserved. I am a nurse and much better at running my business in research than in figuring out all the finance stuff. I try to be intelligent about it, just doesn't seem to soak in! Thanks for all of your advice. I was thinking I needed to talk to someone who doesn't have any skin in the game with my investments. Glad you were available.

Variable annuities are a bear to tackle. The 15% bonus is an attractive offer.

From our discussion, I believe you are very intelligent and well prepared to make a good decision.

The good news is... you don't have to make a decision today and I will be here to help you with any additional questions.

If you do have any questions please let me know!

Chad EA, CFP ®
Chad EA, CFP ®, CERTIFIED FINANCIAL PLANNER TM, Professional
Category: Finance
Satisfied Customers: 1,408
Experience: Federally licensed IRS Enrolled Agent, Certified Financial Planner (R), MBA
Verified
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