Nov 04

Old Annuity – Gold Mine or Money Pit?

By Todd Holden, Financial Advisor

Annuities are contracts between the annuity owner and an insurance company — nothing more, nothing less. Like any contract, they have terms. Sometimes, these terms turn out to favor the annuity owner, and a smart owner can use these terms to their advantage. Other times the contract terms favor the company, and the annuity owner should get out of the contract as quickly as possible. Below is an example of both:


Gold Mine

Around 2002, my mother purchased an annuity contract from a well-known insurance company. The terms of her contract call for a minimum interest rate of 3% AND no surrender charges. As long as she keeps a $10,000 balance in this contract, she can move money in and out of it willy-nilly. During the last decade of exceedingly low interest rates, she has used this annuity as an alternative to a money market fund. Whenever she has had extra dollars, she’s put it into her annuity contract. Whenever she needed to make a large expenditure, she pulled the money out. No charges, and she’s always earned 3%. She loves this; the insurance company hates it.


Money Pit

Sometime in the ‘90s, insurance companies began to offer guaranteed income riders, usually referred to as GLWB or GMIB. (These are complicated, so we will not delve into them here.) These riders guarantee an annuity owner a certain level of income from the annuity no matter how the annuity investments perform. They are a contractual obligation of the insurance company for which the annuity owner incurred a cost, let’s say 1% per year. There were a ton of annuities with these income riders sold in the 2000s. Fast forward ten to twenty years, and we are seeing many investors with these annuities who have not utilized these income riders and NEVER will. Yet, they continue to pay substantial fees every year and will continue to do so for these unused riders. It makes sense for these annuity owners to consider getting out of these contracts as the advantage is to the insurance company.

Please beware that annuities should not be surrendered or redeemed without thoughtful consideration as there could be significant tax consequences of merely “taking the money and running.” Please seek advice from a professional who is knowledgeable about annuities and their particular tax characteristics.

If you would like to review your old annuity contract, you are welcome to contact me for a complimentary consultation. I may be reached at or through my website,

This information is not a substitute for specific, individualized advice. For advice personalized to your unique situation, please consult with a qualified financial advisor. Annuities may not be suitable for every investor. Fixed and Variable annuities are suitable for long-term investing, such as retirement investing. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Guarantees are based on the claims paying ability of the issuing company. Withdrawals made prior to age 59 are subject to a 10% IRS penalty tax and surrender charges may apply. Variable annuities are subject to market risk and may lose value. Guarantees are based on the claims paying ability of the issuing company.

Todd Holden

Financial Advisor

Todd Holden is a Financial Advisor for Northwest Financial Advisors. Through his affiliation with LPL Financial, the nation’s largest independent broker-dealer,1  Todd provides a comprehensive range of financial and investment planning, including retirement income planning, estate and wealth transfer planning, insurance protection planning and tax-efficient investment management.

Todd has more than 20 years of industry experience, having entered the financial services industry at Merrill Lynch in 1987. From 2009 to 2016, Todd served as the Financial Consultant for Belvoir FCU and Library of Congress FCU, successfully working to meet members’ needs. Other industry experience includes time spent at MetLife and HSBC.

Todd believes that a good financial advisor should always:

  • Listen more than speak
  • Keep things as simple as possible
  • Provide value that exceeds any cost and
  • Be worthy of the trust and confidence his clients have placed in him

Todd received his Bachelor of Science degree in Finance & Economics from Miami University in Oxford, Ohio. As the son of a retired Air Force pilot and the spouse of a U.S. diplomat, he has spent much of his life traveling the world. Todd likes to say that he is married to the TSP as it plays a significant role in his family’s retirement plan.

Todd and his wife Kelli have been married since 1989 and have two grown children. They have resided in Falls Church, VA since 2008. When the children were younger, Todd served on their school’s parent advisory committee, helped build sets for theater productions and managed his son’s hockey team. He is a novice sailor and an avid bicyclist.

1 As reported in Financial Planning magazine, June 1996-2020, based on total revenue.
Todd Holden, Financial Advisor

Financial Advisor

Todd Holden

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