A couple invested $700,000 with an insurance company, expecting to access their money in five years. However, they discovered it would take 10 years, with significant early withdrawal penalties. Here’s what financial experts advise.
The Situation
The couple, with retirement savings of $240,000 and $460,000 respectively, faces penalties of over $24,000 for early withdrawal. They can withdraw 10% of their investment annually.
Expert Advice
Financial experts suggest consulting a fee-only financial adviser to understand their options. “You either have to accept it and work around the 10% annual withdrawal amount or wait until the surrender period is up and transfer your accounts,” says James Daniel, a certified financial planner.
R. Deaton Smith, another CFP, recommends waiting five more years to avoid penalties. However, Lauren Lindsay suggests asking the agent’s supervisor for better options.
Understanding Annuities
Annuities can be complex, with high surrender fees. Alonso Rodriguez Segarra, a CFP and CEO, notes that exiting such products often comes with financial costs. A financial adviser can help calculate the best withdrawal strategy and explore alternative investments.
Potential Next Steps
- Consult a fee-only financial adviser to understand the annuity’s internal cost structure.
- Consider alternative investments like stocks, bonds, or real estate.
- Check if there are better annuity options with lower fees.
Possible Recourse
If the couple was misled about the five-year withdrawal period, they might have a case with their state insurance commissioner. Threatening to take this step might even resolve the penalty issue.
Conclusion
The couple’s situation highlights the importance of understanding annuity contracts. Seeking professional advice is crucial to making informed decisions about their retirement savings.
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