ArcaMax

A decade ago, the insurance industry made a huge annuity sales pitch to pre-retirees, offering them “variable” or “indexed” annuities with potential stock market growth — and typically with an attached rider promising future income. Now, in most cases, despite the huge gains in the stock market, the income portion is worth far more than the investment side.

That’s a result of the way those variable annuities were structured, with limited indexes that frequently did not include dividends, which make up a significant part of the stock market’s gain, as well as annual caps on returns and artificial measurement dates that could be changed by the insurance companies.

Now, decades later, many owners of these annuities have questions about how they will take the money OUT of those products. And a new generation of salespeople are now pitching them to reinvest — and pay new commissions and face new restrictions — in new annuities. They offer tempting upfront “bonuses.” It’s called “flipping” or “churning” in the industry. And it’s almost always a huge mistake.

That’s because when you move the money to a new annuity, you only get to transfer the lower “investment” accumulation value — not the much larger value in the income-rider account!

The agent who is touting the new purchase, despite promising a 25% upfront bonus, can only transfer the smaller accumulation value of the investment side. And that can’t make up for what you could have had in lifetime income if you kept the original policy. In fact, those original policies were designed to keep you sticking with the original insurance company because it provided the highest contractual guarantee.

The deal the new agent is offering will net him or her a nice commission. But it will permanently reduce your income. And you’ll never understand that unless you contact the insurance company directly and ask for the value of the guaranteed income-account portion of the policy.

But you can’t just take that income-account money out — even though it is likely much higher than the transferable investment portion of the policy. You’ll be given some options for lifetime income. And the best place to get those options is by calling the carrier to find out what kind of guaranteed lifetime income you could receive starting now, or even by waiting a few years.

Don’t let anyone flip you into a new policy unless they can show you that they can contractually — not hypothetically, based on some possible investment return — guarantee you a higher income. And the key word is “contractual,” in writing.

The annuity industry requires that agents present a side-by-side comparison. But sometimes the numbers are confusing. If you want an independent second opinion on the choices being offered, you can contact Stan Haithcock at www.StantheAnnuityMan.com.

Haithcock reports that 95% of the time, he advises that you stick with your current policy — and start taking lifetime income. At that point, he explains, you are transferring longevity risk to the insurance company because they MUST pay you that promised monthly amount for the rest of your life (or, in cases of joint payout, for your spouse’s life, too), even if the “income account” becomes fully depleted.

At what point does it make sense to stop going from accumulation in that income account, to taking lifetime income? The time to do that is when you need income. When you die, you will lose any money you have not withdrawn from the income account in your lifetime, so don’t hesitate to turn on the income stream at retirement, advises Haithcock.

“Over 60% of people who have income riders never turn them on!” says Haithcock. At death, any amount left over in the accumulation value (but not in the income account) becomes a death benefit. But while you’re alive, the check will continue — even after that accumulation value happens to run out!!

If you’re at the stage where you are being called to do something with your old annuity, please seek a free consultation with the experts at StanTheAnnuityMan.com. Maybe you don’t need an annuity anymore. But you do need to understand the tax implications of cashing it in (and the potential impact of the gains on your Medicare premiums). Maybe it’s time to activate lifetime withdrawals — a monthly check that will be at least partially taxable (unless the annuity was purchased in a Roth IRA). It’s worth exploring.

If you thought annuities were tough to understand when you first bought them, you must now realize the impact of your decisions — or avoiding those decisions — as you retire. The possibilities are daunting, and you need trusted advice. And that’s The Savage Truth.

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(Terry Savage is a registered investment adviser and the author of four best-selling books, including “The Savage Truth on Money.” Terry responds to questions on her blog at TerrySavage.com.)

©2026 Terry Savage. Distributed by Tribune Content Agency, LLC.