Avoiding Recommendations That Keep You In Annuities

Q. Jeff, I have previously contacted you and do receive your weekly letter.

My wife has 5 variable annuities (UGH) 2 American Skandia ASAPII, 2 ING Premium Plus, and 1 Allianz Alteriity.

The Skandia and Ing consist of a qualified and a non-qualified, the Allianz is non qualified.

The Skandia ones will not have any withdrawal penalties after mid Jan. 2006 The combined value is in excess of $250,000. My wife will be 57 in August and we may want to start withdrawing money when she is 59 1/2.

The annuities have done well the last two years, 34% in 2003, 23% in 2004 and 7.5% YTD 2005. Most of the gains have been in Cohen & Steers Realty and T.Rowe Price Natural Resources.

I am concerned about protecting the money and am exploring options as to where to go with it in early 2006. I know I can leave it at Skandia and try to find conservative funds. I can roll the IRA money into another IRA invested in various funds elsewhere. Our estate planner suggested the index annuities which I quickly said NO.

I am looking for some input on how to get away from these annuities.

I do use a broker for my own investments, and he has the Allianz annuity, but I'm not certain he's got the answers. For reference, I am 10 years older than my wife. I would appreciate any comments you may have.

A. First, you've really got to question whether you want to continue working with the 'estate planner' who recommended the EIA. Often, brokers and agents use terms like 'estate planner' to make themselves look like something other than what they are---financial salespeople. It's obvious you're smart enough to figure that out.

Regarding your existing annuities, the issue as I see it is cost and control. The returns you've had the last couple years are great--but I imagine that you aren't diversified very well. Don't make the mistake that many made in the late nineties by moving most of their money to the hot sector....

Since your wife if under 59 1/2, I would transfer the non-qualified annuities to a no-load annuity like Vanguard so that you don't have to pay the IRS penalty for pre-59 1/2 withdrawal. Vanguard will be much lower cost and give you complete control. After 59 1/2, you should probably tap those funds first. You could even look at annuitizing over a 5 year period so that each years payment would be a portion principal and a portion interest. If you aren't in a higher tax bracket don't worry about annuitizing....

The qualified annuities should definitely be rolled to an IRA. The only thing you will be losing is the death benefit guarantee but you will be saving a couple percent a year in fees.

As you know, I am weary of commission-based advisors and the broker you mentioned is no different. You will always have to be weary of recommendations. If you are making investment decisions yourself then you should be using a discount broker.

When the time comes I will be happy to provide a recommended portfolio and to tell you more about the proprietary money management strategies that I've developed. They are designed to provide Equity Indexed Annuity-type benefits without any commission, time-commitments, set-up fees or surrender penalties. That means you retain complete control and flexibility.

Your posted comments on this and other questions are welcome.
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