Improve Your Plan for Retirement Income by Trading in High Cost Variable Annuities

Having been “the father” of a number of variable annuity innovations, I know that these contracts were designed to be converted into lifetime retirement income. Until recently, most VAs were sold through commissioned sales representatives and had high annual fees. Now, VA investors have the opportunity to trade in their current high cost contracts to low cost, advisor serviced VA contracts.

Whether you are accumulating or drawing down savings, the average cost of a “plain vanilla” VA contract (no living or minimum benefit guarantee) – according to LIMRA, a life insurance industry trade association – is nearly 2.30% per year. When you add in the cost of a living benefit guarantee (LBG) in a VA contract, the average cost approaches 3.50% per year, according to Morningstar. These costs significantly reduce the potential growth of account value, which usually translates to a reduction in the amount of annuitized income that can eventually be received in retirement.

Let me suggest two immediate, easy ways to lower these fees right now: 1) a 1035 exchange from an existing non-qualified VA contract to a low cost VA contract, and 2) a “rollover” from a Rollover IRA VA contract to a low cost Rollover IRA managed account. The savings from either of these lower cost alternatives will compound significantly over time. For any living benefit guarantees you might give up in this exchange or rollover, you may way want to consider alternative ways to provide income protection.

The non-qualified VA contract you should consider for a 1035 exchange should no longer be subject to a surrender charge, and you should intend to hold the new contract for a reasonable period of time. To learn more about a special 1035 exchange program developed by Golden Retirement Advisors to assist with this transition to a low-cost VA, click here.

Having done this analysis on nearly every kind of VA contract over 40 years, exchanges to lower cost VAs are well worth considering.