What Is An Annuity And How Does It Work

Tania's in Illinois hey Tonya how are you hi thanks for taking my call Dave I'm so pleased this week with you you too what's up well I'm hoping you can guide me I think I've made a big mistake my husband and I just started doing your plan in August and it's been amazing but we're on baby step 2 but this has to do with an old 403 B that I've had nothing's being contributed to it but earlier in the year back in April we went to the financial planning services that my company sponsors and pays for and they did a full workup and I had been kind of having sleepless nights because my my value would go from I'd lose like $20,000 you know and then I get anyway there was a lot of risk so they suggested that I moved some money a hundred and sixty six thousand into a traditional annuity within my 403 B retirement account guaranteed.


So right now 30% of my 577 that's thousand that's in there is now in this annuity and now that I've started listening to you we're following your steps I'm starting to realize that probably what's a huge mistake yeah and I don't know what to do I'll contact them and see if they can reverse that and put it back into mutual funds okay cuz um they said it would be like a 10-year process that's taking you know attempt out each year and so that's so they put you in something inside of a retirement account with a surrender charge oh I don't know no these guys are absolute screwballs so I need to if yeah it's in my my 403 B and it's some kind of retirement Saamy penalties are what your surrender charges are and and you may be stuck there but the other thing you gotta weigh it against is you're probably making 2% on this thing instead of 10 or 12 okay and so if you're if you're if your surrender charge is 10% take it and move it put it in something that makes 10% more the first you recoup okay gotcha what makes once you know I don't know what your surrender charge is though the stupid thing might be 40%.

I don't know so call them and ask them about syringe Oh tell them tell them that you are really upset now that you learn what it is they actually sold you that you they put you in a surrender charge product inside of a retirement account which is absolutely screwed up that's ridiculous I mean you've got two sets of penalties on this money now if you get if you need to get to it right the government and these idiots yeah so now I don't know I don't know what they're gonna do but see if what they can do to get you out I would tell them you're not happy with them and we want to get you moved and see if you can lean on them a little bit and get it moved and then get some advice from somebody else before you make any more moves and like a smart vest or probe that has a clue what they're doing so Wow all right let's stop a second what is an annuity an annuity is a life insurance company product it's a savings account with a life insurance company.


There are two types of savings accounts with life insurance companies fixed and variable fixed pays you basically a CD rate one or two percent right now which is what she's in and it grows inside of an annuity tax deferred like a 401k or an IRA does and you pay extra fees for the annuity so here's what's happened you have a tax deferred 403 B and they moved her into a substandard horrible rate of return that she's paying extra fees for and is also tax deferred that's redundant there's tax deferral on the tax deferral you can't double dip on this you get one shot at this and she already had all that for free because it's inside the 403 B it didn't need to be in an annuity but she got scared with her risk tolerance with the stuff moving back and forth and so these groups dropped her into this thing why is that bad because then they put you on a surrender charge and then it takes seven years to be able to get your money moved out of there without getting hit with some kind of a charge and gut-punched and so there is zero times never not a case anywhere that a fixed annuity is the answer never there's always something better because a fruit jar at least doesn't penalize you when you take the money out early and you're not making much more money on it than the fruit jar anyway you can also do a variable annuity which is a fine product but not inside of a retirement account the variable annuities are mutual funds inside of an annuity and they have some actual benefits after you've maxed out all of your retirement accounts not against variable annuities once you've maxed out everything and you paid off your house but you'll need to use a variable annuity inside of there you're paying extra fees for the tax deferral and the benefits of the annuity and you don't need to pay for that because it's already in the side of a retirement account.