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How to get out of an annuity

Aug 15, 2011 | | Comments (2)

Dear Liz: I invested in an annuity, and now I’m sorry. How do I cancel an annuity? And what are the ramifications of doing so?

Answer: Annuities are a lot easier to enter than they are to exit. Many annuities have substantial surrender charges if you try to cash out in the first few years. You also may owe taxes and penalties on any earnings.

You may be able to get the insurer to “unwind” the annuity (essentially, refund your money without surrender charges) if the salesperson used deceptive tactics. If that’s the case, consider enlisting the aid of your state insurance commissioner.

Otherwise, you may want to consider waiting until the surrender charges no longer apply, and then cashing out or exchanging it for a lower-cost annuity. A visit with a fee-only financial planner could help you decide on the right move.

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Categories : Annuities, Q&A

2 Comments

1

Hi Liz,

I read with interest your article on
How to get out of an annuity…

My new bride Joy was ‘sold’ a $250K annuity last year by her financial ‘advisor’ and she just contacted him to get her money so we could buy an investment property house here in Oceanside, California. He informed her about what she had ‘bought’… (we have no investment experience, even though the advisor has Joy listed as an ‘Expert Investor’ on her portfolio with Mass Mutual.

She was sold a MassMutual RetireEase single premium immediate annuity, and apparently if she wants to cash it in now they will give her $130K, and that’s it…

She is receiving a monthly payment of $856, until she dies, then the company keeps the investment.

I don’t understand how they can do that. And I don’t know why she just didn’t buy Canadian bank stocks (BNS, BMO, Royal Bank, etc., which pay a great dividend, and you can cash in your money with one click of Scottrade, and they just seem to keep slowly climbing since 2008…).

Her insurance ‘advisor’ never told her the consequences of this annuity investment, and he has her listed as a financial expert. Isn’t there some way to get back the $250, minus what has been paid out the past year? Joy will be 59.5 years old in May 2013.

Any assistance is appreciated, as we are losing a lot of sleep over this.

Fair winds – Gordon

2

With an immediate annuity, you’re trading a lump sum of money for a guaranteed stream of checks. When you know what you’re buying, it can be a good way to create a kind of a “pension” in retirement. The big downside is that you typically can’t get your money back (or you pay a huge penalty). The fact that the salesman mislabeled her investment experience may help you get this investment unwound. Contact your state insurance regulator, explain what happened and ask them to intervene for you. If the regulator won’t act (their consumer focus varies by state), your bride may need to hire a lawyer to help her.