Review Your Annuity Annually for Peace of Mind

Written by Hersh Stern Updated Thursday, December 5, 2024

One of the great benefits of an annuity is that it can run on auto-pilot…almost.

I recommend that at least once a year you review the annuity strategies you have in place, consider any changes which may have occurred in your life or in the market, and evaluate whether you are getting the highest return from your annuity. This is particularly important if you are at or near retirement.

As part of the foundation of your overall financial plan, your annuities deserve an annual check up too. All too often I see clients who purchased an annuity years ago and have simply assumed that all is well. Fortunately, this is often the case – but sometimes it isn’t.

Here are some important questions to ask about an existing annuity:

Have my beneficiaries changed?

A common oversight with all annuities (immediate, multi-year guaranteed (or MYGA), or fixed index) happens when you fail to update your beneficiaries. Beneficiary designations should be reviewed and updated when needed.

Is the annuity under-performing?

A MYGA or fixed index annuity that held great promise for you at the time it was sold may not be the right annuity for you today. For example, a MYGA that was sold several years ago when interest rates were at historical lows may be offering a return as low as 1 or 2 percent. Fixed index annuities can have a high cap rate locked in for the first year, but this can fall dramatically over the life of your annuity.

Is the company holding my annuity still highly-rated?

Is it a market leader? The financial turmoil over the last decade means that formerly shining industry leaders may have lost some of their luster.

Some companies have even gone out of business and transferred their assets to other companies. You want to be sure that your annuity is still in the hands of a highly-rated company.

Have new annuity products come on the market that are a better fit?

The insurance companies regularly offer new products designed to meet your needs and concerns. In today’s market, there may be a MYGA or fixed index annuity that fits you better than the one you have now.

The IRS has made it possible to transfer from one annuity to another without a tax penalty.

When moving funds from one non-qualified annuity to another, a Section 1035 tax-free exchange allows you to do so without incurring extra tax. The same is true if you are moving money from an IRA into a qualified annuity.

Often, the right product is in place and there is no need for you to switch. But when there is an annuity that can do a better job of providing for you, it can often be a change worth making.