Annuitizing a Variable Annuity

Money
1

Back in the day when IRAs only allowed $2000 per year contribution, I funded a variable annuity. It has grown to over a third of a million dollars.

Not having any potential pension with fixed payments except social security, I was interested in what sort of annual income the annuity could provide for the rest of my life. I was surprised it would probably bring only $1700 or so each month.

But the annuity agent said they normally “shop” companies to see who could give the best annuity. This is news to me. I thought the life insurance company itself annuitized a policy.

Thereafter, a broker at Fidelity brokerage kept calling, asking me how he could “help” select the annuitization product. When a broker is relentless in calling, it is usually because there is a big commission to be had.

I am starting to think I would do better just scheduling regular withdrawals from the variable annuity when I decide to retire. But that would require work on my part.

How would the rest of you turn a a variable annuity into monthly income? For tax reasons, I would not want to liquidate the whole thing at once.

2

I’m not surprised. The rate does depend on your age, interest rates, and yes unfortunately the agent that sold you a subpar product.

If you’re in your 60s, it’s not an incredibly low rate since we have incredibly low rates now. That said, your annuity might have a value that is less than the benefit base your annuitized benefit is based on. So it’s grown to over $350,000. Is that the benefit base or what you could actually get your hands on?

Before you take withdrawals or annuitize, you want to realize what your balance is if you withdrew 100% of the balance.

I dislike these products because they’re incredibly complex

3

I could cash out the annuity for $350,000, but I would pay the taxes on the gain from $59,000 invested years ago.

I am age 66.

Think I would come out better just withdrawing it as I need it. Problem is, the gain comes out first, and is fully taxable.

1 Like
4

Yes so you’d want to take a fraction out each year. Ideally you’d remain in the same tax bracket whether it be 12%, 22%, or 24%