“Thank you for the good advice on variable annuities. But here’s the tough question: 2.5 years ago I bit, I’m now in, unfortunately, it’s up 28% (not 100% as an index fund would’ve been), I’ve got about 15 years before I expect to start withdrawing, what do I do? Or, even, how do I go about analyzing what to do? I’m willing to take some risk; it’s not food & lodging money.” — Steve Lawrence

Well, that’s one of the key problems with annuities. Once you’re in, they’re hard to exit. You may have surrender charges to pay, along with ordinary income tax and, if you’re not yet 59-1/2, a penalty.

Off the top of my head (an even less reliable launching pad than deep within my brain), I’d suggest that unless the amount is large, you just not worry about it. You were smart to save money; it’s up a lot already (let’s hope the reason for its severe underperformance is at least in part more conservative investing that could cushion the blow of a down market); you made some sales person very happy. What’s done is done.

If the amount is significant, and you have the time and are willing to put up with the possible frustration and disappointment, check into the specifics of your annuity. Are you subject to surrender charges? If not, would you be better off switching to a different annuity? (The new one you choose will happily walk you through the government regulations that allow a tax-sheltered, Tarzan-like swing from one tree in the annuity forest to another.) But beware: don’t switch from a conservatively managed variable annuity to an aggressively managed one when the market is high, as it is now.

But in terms of withdrawing the money from annuities altogether to invest directly in the market — especially if you’re not yet 59-1/2 — I doubt it would make sense.

All other comments welcome.



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