From Kiplinger · · 1m 50s
Annuity Contracts Need Review
Older annuities may earn lower rates than current options, but replacing them risks losing valuable benefits.
In brief
Older annuities may earn lower rates than current options, but replacing them risks losing valuable benefits. Review annuities when surrender periods end or interest rates change to ensure they still meet your retirement goals. Originally reported by Kiplinger.
Annuities Often Stay Untouched
Investors regularly check stocks and bonds but rarely review annuities, which can sit untouched for years.
Interest Rates Changed Everything
Rising interest rates from 2020s low levels reshaped annuity economics, with U.S. retail sales hitting $464.1 billion in 2025.
Old Fixed Annuities Are Risky
An older fixed annuity with a low renewal rate could earn 2% versus new annuities offering 4% or 5%, costing $5,000 annually on a $250,000 contract.
Original Purpose Matters Most
If you bought an annuity for guaranteed income, focus on income potential, not current value.
1035 Exchange Rules Apply
Section 1035 of the Internal Revenue Code allows swapping annuities without tax recognition, but new contracts may restart surrender periods.
Don't Replace Without Care
Older contracts might have accumulated benefits like lifetime income riders that can't be duplicated with new products.
Review When Surrender Period Ends
Check annuity rates and guarantees when surrender periods expire to avoid costly rate differences.
Compare Full Economic Value
Evaluate the entire economic value of an existing contract versus alternatives, not just current rates.
Annuities Need Periodic Checks
Like stocks and bonds, annuities should be reviewed periodically as market conditions and retirement needs change.
Surrender Charges Matter
After surrender periods expire, annuities may have low renewal rates but no surrender charges, making them less competitive.
Income Riders Are Valuable
Lifetime income riders can provide substantial benefits that may not be replicable with new annuities.
Tax Implications Exist
Section 1035 exchanges avoid tax recognition but require careful comparison of surrender charges and benefits.
Here's the gist
Review annuities when surrender periods end or interest rates change to ensure they still meet your retirement goals.
