When and How to Use an Annuity

Here is a terrific article by Oblivious Investor on when and how to use an annuity in retirement.

I completely agree with the Oblivious Investor's opening paragraph:

 "Many annuities (maybe even most) are a raw deal for investors. They carry needlessly high expenses and surrender charges, and their contracts are so complex that very few investors can properly assess whether the annuity is a good investment.  

That said, one specific type of annuity can be an extremely useful tool for retirement planning: the single premium immediate annuity (SPIA)."

Getting Out of a Bad Annuity: 1035 Exchange

The Oblivious Investor blog has a good post about how to get out of a bad annuity.  If you own any annuity, it is worth a look.

Not all annuities are bad - just 95% or more.  For this reason, I typically tell folks to completely avoid all annuities. The odds are the annuity your salesman is pushing is one of the bad ones.  He/she would not be pushing it if it didn't provide big fees for him/her.  While it might not make tax sense to sell out of an annuity, it might make sense to "exchange" a bad annuity for a less bad annuity.  I would hazard a guess that if you have an annuity, and it is NOT a Vanguard annuity, you should look into exchanging into a low cost Vanguard annuity.

Most annuities will charge a "surrender fee" when you leave, but this fee gets smaller over time and quite often goes to zero after 7 years. You've got to do the exchange right to avoid a tax headache - so read the blog at the link above, and call Vanguard at 1-800-357-4720 if you are not comfortable doing this yourself online.

As I always say, I don't work for Vanguard, but they are the lowest cost investment manager in the world and most of my money is invested in their mutual funds and ETFs. That is why I always recommend them to family and friends and use their funds and their ETFs in my investment recipes in my books.