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Surrender or Annuitize annuity?
Old 05-02-2016, 10:43 AM   #1
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Surrender or Annuitize annuity?

I have an annuity that has returned approx 3% annually since 2004. It returned 3% in 2014, -.55% in 2015 and -1.18% so far in 2016.

I'm not happy with the return, and I'm in the process of consolidating/streamlining our investments into 2 or 3 sources, so I feel the need to do something with the annuity. We are 60 /61 years old and anticipate living off cash and post tax investments for the next 5-6 years. Then start taking IRA withdrawals and paying the tax from SS income.

I see a few options:

1. I could surrender it now and take the cash, paying tax on $66k gain. Then put the proceeds in my post tax account. But I'm unsure of the affect of this on my 2016 taxes, given that I have some gains I need to account for in 2016.

1a. I could surrender it in 2017 when the tax situation will be much clearer - no anticipated unusual income/cap gains in 2017.

2. I could annuitize the annuity, taking lifetime (or short term?) payments.

3. I could leave it as is.

I'm leaning toward 1a. The surrendered $ would be invested for at least 5-6 years in a post tax account that has a return that should double that of the annuity.

Is there anything else that I'm missing?
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Old 05-02-2016, 11:08 AM   #2
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Quote:
Originally Posted by Ronstar View Post
I have an annuity that has returned approx 3% annually since 2004. It returned 3% in 2014, -.55% in 2015 and -1.18% so far in 2016.

I'm not happy with the return, and I'm in the process of consolidating/streamlining our investments into 2 or 3 sources, so I feel the need to do something with the annuity. We are 60 /61 years old and anticipate living off cash and post tax investments for the next 5-6 years. Then start taking IRA withdrawals and paying the tax from SS income.

I see a few options:

1. I could surrender it now and take the cash, paying tax on $66k gain. Then put the proceeds in my post tax account. But I'm unsure of the affect of this on my 2016 taxes, given that I have some gains I need to account for in 2016.

1a. I could surrender it in 2017 when the tax situation will be much clearer - no anticipated unusual income/cap gains in 2017.

2. I could annuitize the annuity, taking lifetime (or short term?) payments.

3. I could leave it as is.

I'm leaning toward 1a. The surrendered $ would be invested for at least 5-6 years in a post tax account that has a return that should double that of the annuity.

Is there anything else that I'm missing?
I think I like option 1a too, especially if that $66k gain is all (or the vast majority) of taxable income you have in 2017 because, the gain would then be tax free (<$74,900 after deductions if you file jointly).

In any case, I'd suggest doing a simple NPV calculation (incorporating taxes) for each option, to help you decide.
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