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  • Financial Professionals

Nov 30 2009 12:00AM


I have an annuity that I can convert fairly soon. It has paid 4.5 percent and if I continue, it will pay around 2.5 percent maximum for another five to 10 years. At age 55, does it make sense to pull money from a brokerage fund to add more to the annuity for another 10 years?


"Unfortunately, the good questions usually tend to be complicated, and this is one of those good questions," said FPA member Lance Alston, CFP®, author of Wealth Without Worry.

"To be fair, it's difficult to answer your question in the absence of more information," he said. "A financial planner would need several other pieces of information before they could help you determine what you should do with your fixed annuity and the money in the brokerage account you mentioned."

Alston said it's important to clarify whether your annuity is fixed or variable. "From the information you provided, I am assuming your annuity is a fixed annuity (meaning it pays a fixed interest rate for a certain period of time) and that fixed interest rate will adjust downward in the near future from 4.5 percent  to 2.5 percent," he said. "It's important to clarify this because many annuities are not fixed; the growth or interest you receive from that type of annuity can vary from period to period."

No matter whether your annuity is fixed or variable, he said, "Annuity is probably just a part of your total retirement portfolio and it is important to know how the annuity fits into your overall retirement plan." Therefore, you and a financial planner need to ask the following questions before deciding what to do with your annuity:

  • What are your other investments?
  • Do you have a pension?
  • When do you plan to retire and when will you start collecting Social Security?
  • If you are married, how does your spouse's retirement plan coordinate with yours?
  • What is your tax rate now and in the future? "This is an important one because the annuity payments or withdrawals may be partially taxable," Alston said.
  • Is the annuity held in an Individual Retirement Account (IRA)? What is the long-term plan for the annuity money?
  • Have you discussed the available options with the person who sold you the annuity?
  • What are the fees, commissions, penalties, etc. associated with the annuity? "These can be very important factors," he said.

Those questions are important when analyzing what to do with your annuity. "But the most important thing to remember is that you must start with a financial plan before you can answer the individual questions," Alston said. "Oftentimes an OK decision regarding a specific investment can be a bad decision, when you consider all of the factors involved in your retirement plan. So, please remember to consider your whole retirement plan and not just the annuity question."

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