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Old 11-13-2013, 06:40 PM   #21
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Originally Posted by HappyOutsourced View Post
Thank you, ETFS_Rule. We're both about 60 so we're safe with the 10% penalty. The reason we bought into these annuities in the first place was that we were fightened to death of the stock market and thought this would help us overcome our fears. Also, a friend of ours had put his entire 401K money into this when he retired at 62 and he seemed to do well with money.
That was 8 years ago - almost 8 1/2. Fortunately we didn't put our 401K into this just some ROTH money we had in CDs that were paying next to nothing in 2005. Since then we've opened a brokerage account for the 401K and have been through the 2008 melt-down and recovery. I'm no longer so terrified of the market and have now have no desire for an annuity. I'm trying to figure out the best way to play this. Thanks again.
Oh. Great. Then the only thing you have to worry about (if you were to decide to pull your money out) is closely controlling your withdrawals. Take out too much and your ordinary income tax rate jumps very high. This is the downside of investments like annuities which are taxed as ordinary income.

I assume you put your money in an index annuity then (not a variable annuity)? The last 10 or so years have been one of the very rare times where the annuity has actually done better than a separate account, although getting out of the annuity at the market bottom in 2009 would have been a brilliant move. Will annuities outperform a stock/bond separate account for another ten? I doubt it. In a study conducted by Dr. Craig McCann of UCLA and Dr. Dengpan Luo of Yale University, they discovered that investors would be better off in a simple portfolio of U.S. Treasury bonds and large cap stocks 97% of the time.

Another thing to think about if you have heirs listed in your will, then gains are taxed! With other investments like stocks, bonds and ETF's there is a stepped up cost basis -- No taxes on gains. So essentially annuities screw over your loved ones. Don't expect Mr. Broker / agent to mention this.

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Old 11-22-2013, 06:51 PM   #22
Recycles dryer sheets
Join Date: Oct 2013
Posts: 64
Well, after more research ,including checking the contract literature and contacting the insurance company a couple of times, I realized the payout on the annuity will be as good or even a little better than the yearly rollup that we're currently withdrawing. So we decided to continue to do what Moshe M. suggested - just keep drawing the rollup each year and if the cash balance goes to zero, annuitize. If we never have to annuitize, we can use the GMDB as life insurance. I'll just have to quit thinking of the cash value as part of my portfolio and more as funding for 2 tiny pensions with possible death benefits. I wouldn't recommend buying one of these but at this point, I think this is the best way to play it.
Thanks everyone for the advice.

A year away from work is 26 years of 2 week vacations.
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Old 11-23-2013, 04:51 AM   #23
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Great glad it worked out for you.

When I first read about this in his book, I was a bit confused. Like many thing regarding annuities it is pretty counter intuitive.

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