Surrender Free Annuity

Episode 39 April 28, 2022 00:16:40
Surrender Free Annuity
Annuity Straight Talk
Surrender Free Annuity

Apr 28 2022 | 00:16:40

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Show Notes

All deferred annuities come with a surrender period, during which you are charged a fee for any funds withdrawn in excess of your penalty free withdrawal.  The charge declines over the years and eventually goes to zero, meaning you have access to all your funds without penalty.  Most contracts are open-ended after that but some require you to move the money soon or recommit to a new surrender term.

In this episode, Bryan will take it a step further and explain all products and scenarios. He will give us a clear picture of what a “surrender free annuity” means.

What You’ll Learn from This Episode:

[4:30] Bryan talks about surrender free Annuity 

[5:17] What happens to a surrender fee?

[5:40] Surrender period for annuity vs. a Maturity date for annuity

[7:35] For the next ten years, there will be a reset to the current rates subject to a guaranteed minimum

[10:17] You do not automatically enter a new surrender period

[13:34] Generally, a surrender-free means no surrender fee. The contract just stays the same.

[13:57] Surrender free annuity doesn’t end; it only continues 

Key Quotes: 

[5:20] “When it comes to a surrender free in most cases, it simply means that you don’t have surrender charges.”

[7:12] “With a contract like traditional fixed annuities, they would spell out your options.”

[10:34] “You can’t just blankly assume that they all work that way. You should know ahead of time what your options are.”

Resources:

Annuity Newsletter

Call Annuity Straight Talk at 800-438-5121 or schedule a call at AnnuityStraightTalk.com

View Full Transcript

Episode Transcript

Speaker 1 00:00:05 This is annuity straight talk since 2008. Your host Brian Anderson has helped clients nationwide navigate the complex market for annuities with Brian's assistance. Hundreds of clients have achieved a profitable and secure retirement. I would know because Brian has answered many of my questions concerning annuities and retirement planning So that you can benefit as well. Let's get started. Here's Brian. Speaker 2 00:00:48 Hello and welcome everyone to the annuity straight talk podcast, episode 39. My name is Brian Anderson, founder and creator of annuity straight talk.com here to answer all your questions about retirement planning and I don't know everything, but I know a lot. And I just tell everybody, um, if I don't have the answer, I know where to get it pretty dang quickly. So here to help love to do it. I took a week off. I apologize. I got very, very, very good news. The emergency variety, a positive emergency last week. Not everyone would fully understand the importance of it, but I drew two special hunting permits in the state of Montana for this fall. So it's the kind of thing that getting one of 'em is kind of a once in a lifetime deal or certainly once in every 12 or 15 or 20 years deal. I know some people have only been put invert 30 years and never got even one of 'em. Speaker 2 00:01:42 And I got two in one year. Me and buddy Casey. So I'm just gonna say it right now. Don't expect anything outta me in the month of September. So I'm going fishing this weekend. I'm excited about that. Going hang out with boys. And when I get back, it is all hands on deck getting in really good shape, being productive with work. I wanna make sure everybody gets what they need from me so that when I take an extended period of time away, you guys will be you just fine. So today what I'm gonna talk about is something that's come up in with a lot of clients in the past few weeks. Everyone remember prior to seven or eight years ago, we sold mostly structured settlements and got a lot of clients that have those and they work just fine, but I don't particularly like them anymore. Speaker 2 00:02:22 I don't like how the businesses on it. I've had a lot of bad experiences with just about everyone that I did business with because of that market. And anyhow, I recognized way back that it wasn't gonna last forever. And again, we did good things for clients and we got 'em good deals, but it's not. The yield is not there anymore where I think it's viable. There's still guys telling them, uh, including my ex-business partner, but they're just, they're not that great. So I don't do that anymore, but that's when I really transitioned. I started selling more fixed annuities, fixed index annuities, and I've told the story, my first fixed index annuity that I sold that was a client who had bought some structured settlements from me and decided, you know, Hey, let's try one of those index annuities. And I'd been researching and looked at 'em a lot. Speaker 2 00:03:08 And this was about nine years ago. And I said, okay, we'll try it. You know? And he had a bunch of money. So he put a little bit into the index annuity and the next year and picked one based on what I thought were good evaluation factors, good company, uh, low cost structure. I wasn't looking for the biggest commission, all that stuff and found a contract. It came through the first year and he made about 5%. Then, you know, the market was good and the rates didn't get dropped. Like everybody said, they were gonna, oh, they're gonna drop the rates. They didn't drop the rates next year. It came 5%. I mean, had a couple down years, but after a couple of those, I thought, you know, these are actually pretty good. That's when I started creating this strategies, ideas to use them because everybody's looking for yield and this was a place to get yield where fixed rate CDs, bonds weren't paying much anyway, but the questions come up. Speaker 2 00:03:52 So a lot of those guys, that person in particular came out of their surrender schedule two years ago. And I had another round of people in the last six weeks who came through a contract and no longer have surrendered charges. So I wanna talk about what that means, cuz a lot of people don't know what it means and there's a couple of different ways. Companies handled it, different contracts and different companies handle it a little bit different way, but there's some general principles you can remember. And I had a, a phone call with a guy yesterday. Who's been listening to the podcast for a while. Mark. Thank you. I appreciate the good conversation. And he was calling because he had some annuities that were surrender free and some others that were coming and he needed to know what, Hey, what are my options with this? Speaker 2 00:04:33 And so for him, I thought, boy, that wouldn't that be great if I could have said, oh that, well, I've got a podcast that addresses that question coming out in three days. I don't. So it's gonna come out. Uh, next week you guys won't know by the time you see it, but I'm skipping a weekend. Nobody even knows it yet. As I record this, they don't realize, oh yeah, I took the weekend off to look at maps and make phone calls to ranchers for my hunting permit anyway. So a surrender free annuity and there's a couple different ways to do it. Now, if you talk about variable Annu, the guy I talked to yesterday, or you talk about index annuities, like my client that bought one nine years ago, typically this is the general way it's it happens. And I told both of 'em oh, it's surrender free. Speaker 2 00:05:14 What's gonna happen now. And the answer is nothing. When it comes through a surrender schedule for in most cases, it simply means that you don't have surrender charges. The contract doesn't end. It continues to be the same contract that it was before you just have full liquidity with the money. So what I tell everyone is there's a surrender period for an annuity. And then there's a maturity date for an annuity. We're talking about defer annuities, right? The surrender period. When you go through that means there are no charges of any type for taking out any money, whatever amount from zero to, from 1% to a hundred percent of the money, no penalty. That's all it means. But the contact continues until maturity at maturity date. If you're talking about a variable or an indexed annuity, then at maturity date is when you actually have to do something with the contract. Speaker 2 00:06:09 And these maturity dates are aged ninety five, a hundred one even goes to 115 years old. And so you could conceivably, if you buy it at 60, you buy a 10 year contract at 60 buy 70 year penalty free, but you're not forced to do anything with the contract for another 30, 40, 45 years. That's when it matures and maturity simply means you either have to take the money out or you gotta annuitize it or do something with it. So if we're looking at, you know, I know Midland nationals, age one 15, I always tell people, well, maturity doesn't matter if you're still kicking at a hundred, eight years old, we'll start talking about your options <laugh> cuz it doesn't really make, make much of a difference. So in the past now I have, I currently have a handful of annuities that I sold 17 or 18 years ago that were 10 year contracts that are still active and still paying. Speaker 2 00:07:00 And those were all fixed rate annuities. And back then it was six and a half, 7% guaranteed for 10 years. And what the company, what those contracts like a traditional fixed annuity, they will spell out what your options are when the surrender term is done. And for those ones in particular, after the first 10 year period, they would reset that say 7% rate. And they would, you'd basically get current rates for the next 10 years, but it wasn't a new surrender schedule. It just said after 10 years, we're gonna reset the rate to current rates, subject to a guaranteed minimum. Well, the guaranteed minimum was 4% with no surrender charges and that was guaranteed for the net X, 10 years. And then after that, they reset it again. So I met a guy probably a year and a half ago who bought a fixed annuity in 1985. Speaker 2 00:07:51 And his minimum guarantee after the surrender period was five and a half percent. So he's been getting five and a half percent since probably 1993 or four war. And, and then obviously there's some moron out there that sells him to surrender it. You know, I think he was, he was in his early eighties. I'm like, man, you completely lick what five and a half percent. That's amazing. And I'm sure the company would love for him to surrender it. But this is like, of course there's a moron out there. That's gonna say, oh, you should get rid event, buy this one with a 10% bonus idiots <laugh> so he called me and I said, man, I think he lived in South Dakota. I said, man, if I have to come to South Dakota and kick some ass, I will make sure you don't surrender that annuity. Hopefully I don't have to go to any expense that I could just talk some sense into him. Speaker 2 00:08:37 But that was uh, interesting. But that's how a lot of those ones work in their still some of those out there. So again, you're looking at for all intents and purposes in a surrender free contract, nothing happens. It's just, it's the same thing. There's just no surrender fees. You have full liquidity. So if you wanna make a change after that, in lot of cases, I have, you know, another client that came through a surrender period with it was just, I think just a couple of weeks ago when he came out and he was asking these same questions, what happens? What happens? I said, you're fully liquid. It doesn't mean. And, and he said, well, it doesn't say fully look, no, the insurance company does not say fully liquid. They're gonna speak. You get in legal terms. Their legal term analogy for fully liquid is 0% surrender fees, years, eight plus 10 plus whatever it would be. Speaker 2 00:09:23 So for him, you know, once I could convince him, this is how the contract's gonna work, he's gonna take the money. And he's probably gonna divide it up into a few different places. But for the time being, he can just sit there. He put his money into a fixed eight. It's only getting him 1%, but he has full liquidity and he can sit here and watch us things change his money's safe, it's with a great company and he might take half of it and go do this. And half of it and go do that, could roll it out into an IRA and do managed money with it. He could do whatever he wants. So I always kind of said, you know, when people ask, when he know one of my things was, they said, what happens when the surrender fees are over? And I would say, well, it's your money. Speaker 2 00:10:00 You can do whatever you want. You can keep the annuity, you can buy another one. You can buy a motor home for all I care or you can take it out and stuff it under your mattress. If you want to, oh, look what easy now the difference and the everybody wants to know you do automatically enter a new surrender period. Unless you choose to roll into a different contract, may have more benefits for you. More perceived benefits. So you can roll into a new contract. Some people do that, not everybody does. So I mentioned the other person that's been outta surrender for two years and does not want to get into a new surrender schedule. And they're just gonna keep the money there retirement in a couple years, then make decisions at that point in time. So pretty simple and easy. Now the difference, this is why you have to read you. Speaker 2 00:10:46 Can't just go in blanket, assume that all of them work that way. So I'm gonna show you. I'm not gonna show it to you because I didn't redact the information. That's from a client, a renewal letter. This person became surrender free. I don't know, last week or something like that. Okay. And he had a MIGA, a multi-year guaranteed annuity, a fixed annuity. So I'm just gonna read this. This is a different option. You should know this ahead of time. What the options are. Then these were disclosed. Nobody was surprised. This is just how it works. So it says your annuity is scheduled to renew on 4, 10, 20, 22. You must elect your preferred renewal option from the choices provided below no later than 30 days after your renewal date. Please note that if you choose not to make an election, your contract will renew with the same guaranteed period and surrender charge schedule. Speaker 2 00:11:41 As your current contract, here are your renewal options. It's not a great scan. It's kind have a photo. So, okay. Three options renew your annuity. Your renewal interest rate will be 2.5% for five years. Surrender your annuity by completing our surrender form or transfer your annuity to a new contract of the company or another financial institution by remitting paperwork outlined on the remote renewal form attached. So you can keep it, you can surrender it. You can take it elsewhere. That pretty much covers all the options that you might have. Now. Obviously he wasn't happy with the two and a half percent rate because it was lower than what he was gonna get before. And I'll explain why I think that is the insurance company wants you to lock into. Obviously they've gotta lock in on the contract. If he doesn't do anything within 30 days, then he just automatically starts. Speaker 2 00:12:29 Let's see. I mean, it says here on the form lower, please note if you elect to surrender, wait. Oh yeah. If we receive your request to surrender or transfer more than 30 days after your renewal date, surrender charges will apply. So you gotta be careful if you're gonna move it, you gotta have a plan ahead of time, but this is more, more often seen in a small subset of contracts in which like the multi-year guaranteed than three year, the five year that do not all work like that. But a lot of 'em do, I would say, but that's the, my get part of the market is a relatively small part of the market for all intensive purposes. I mean, variable annuities are 60% of the market index annuities are gaining a bigger share those two between those two options. You're looking at probably 80% of all an out there. Speaker 2 00:13:15 And so it's just a, an idea to, to tell you that there's a couple different ways to do it. But in general terms, the surrender fee just means there's no surrender fees and that's it. And the contract continues the same. So a guy I talked to yesterday, he was like, man, that's a relief. I don't have to do anything. I was like, no, you're gonna, you know, early sixties. And I said, no, you have those. Tell your hundred if you want to. But that was, it was a relief to him to know. Okay, good. Because it, it took pressure off much like the client from a couple weeks ago, who's gonna sit on his money and he's got full liquidity. He can move a piece of it or all of it whenever he finds a deal that he really wants to get into very simple and straight forward. Speaker 2 00:13:52 So surrender free annuity does not end. The annuity continues. You gotta look at the terms. You gotta know what's happening. In most cases, you're fine. And your liquid other cases you will have may unintentionally lock in for another period if you're not careful. So that's, I think beneficial for people that understand, cuz everybody asks the question. If you have any more questions about a specific contract or you need help deciphering the legal terms, look into your annuity. And it'll say, you know, you'll see the surrender charges outlined and you'll see some language that tells you what your options would be. And if it doesn't tell you that you're automatically renewing, then you're not, and you're fully liquid. So that's most of the contracts on the market. Anyhow, pretty quick, easy topic. You didn't wanna take up too much to, I, I could have done this before, but again, I was busy. Speaker 2 00:14:39 So if you guys have any questions you need or you have about this, or if you got any ideas for, I love it. When, when I talked to the guy yesterday, it was great because I thought, I thought, oh, makes sense. I've gotta do this podcast because it's obviously answering a question. That's bothering someone and it's pretty easy stuff to do. So I got a lot of stuff rolling around up here and that's kind of what the podcast is for. Get it out there, give people way to consume it. And I appreciate the opportunity. I sincerely do. I love what I'm doing. I love meeting you guys and helping you out. So my number (800) 438-5121, schedule a call using the button on the website. Any page it's there easy to do, select your time zone, select your time. Write a few notes. Tell me what you wanna talk about and I will give you a call. So my name is Brian Anderson, annuity straight talk.com, episode 39, a surrender free annuity. Thank you guys. Have a great day and we'll see you next week. Okay. Bye. Speaker 1 00:15:43 You have been listening to annuity. It does not represent tax legal or investment advice. The views expressed by guests on this program are their own and do not necessarily reflect the views on partners. No information presented should be professional. Its important that you all insurance contract disclosures carefully before making a decision Guarantees are based on the paying the insurance.

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