My Annutiy is Dead Money


In these times of uncertainty and risk, many people look to insurance annuities as a safe place to put money.  Just like a bank savings account is a loan to the bank, an annuity contract is a loan to the insurance company.  They pay us interest and may offer a death benefit rider to go along with it.  Variable annuities allow us to manage and invest our money inside the annuity contract.  Insurance annuities are unique in that they keep two sets of books on the balance in our account:  cash value which is the amount we can actually withdraw from them; and contract value which is the fuzzy number that represents the account value if you choose to annuitize the contract – that is, forfeit the money to the insurance company in return for their contractual agreement to pay you a monthly check for your lifetime, with some minimum period guaranteed.  So you give up your cash in return for a guarantee of a check each month.  You, of course, have the option when you need the income to liquidate the annuity, buy the same investments the insurance company buys in an investment account, and live on the income – AND keep the cash.  Proprietary annuities generally have high surrender charges to cover commissions and to keep the money in the contract and discourage liquidation.  At FFA, we use a Schwab variable annuity contract which has no commissions or surrender charges, and very low internal expense charges.  We can manage these, or any other annuity contracts, the same as other managed asset accounts.  Rolling over old, dormant annuity contracts into a Schwab annuity is a simple matter of signing transfer forms.  When you need the income, we roll the assets over into a Schwab IRA, manage the assets to generate income and send you a monthly check – and you keep the money.



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