Should I Cancel My Annuity Early or Wait Until It Matures?
Greg in California asks: "Before I passed special forces training in the Clark army, I did a bad thing. I was talked into an annuity by my advisor, who I thought was a fiduciary.
“Until recently, I thought I had one of the good annuities, but once I did the math I found out that I have a horrible one. It’s an index annuity based on the S&P 500 and how they pay is too complicated for this post.
“Had I just put my money in the S&P 500 instead, I would have $231,000, but alas I have a meager $159,000, a $71,000 difference. In other words, it cost me $71,000 in fees in the last four-plus years.
“My question is: Should I get out of this thing now and pay the current surrender charge of 6% instead of waiting five more years for it to mature? If so, would it be wise to clunk that money into S&P 500 Index fund?”
Clark’s Take on Whether You Should Get Out of Your Bad Annuity Early
Clark says: Annuities are "garbage" and he's on record as saying that they stink. But here's why he feels so strongly about them.
An annuity is an agreement between you and an insurance company that supposedly guarantees you a lifetime income.
“The insurance company pretends that you’re going to get the return of the stock market each year on the upside, and you’ll have no downside, you won’t lose money. These contracts may run 150 pages long, and it’s a big, big lie,” Clark says.
“First of all, you only get a part of the stock market upside each year. And the insurance company keeps all the dividends, which account for a big chunk of what you earn on an index fund or a stock investment.”
Considering Canceling an Annuity? Read This
If you’ve been lured into buying an annuity, Clark says here’s what you should do.
"I want you to go to a fiduciary financial planner," Clark says. Here's how to find a financial planner.
“And I want you to have he or she look through that contract for you and figure out if you’re best off staying in for the five years to eliminate the 6% surrender charge or if you should just give it the heave-ho.”
He says that the reason he’s not advising just paying the 6% to cancel the annuity is “we’re in a cycle where we could see some declines in the stock market moving forward.”
“If you get the minimum value guaranteed by waiting five more years, a fiduciary financial planner may decide that it would be worth it waiting the 16 more months, or they could run the numbers and decide you should go ahead and pay the surrender charge and get out,” he says.
To hear Clark’s full take on this question, listen to the segment:
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