Tuesday, June 15, 2021

Ask the CFP®



Darcie Guerin


“Education is a better safeguard of liberty than a standing army.” Edward Everett, American politician (1794-1865)


Question: My advisor said my annuity matured. Please explain annuities and how will I know when mine matures?

Answer: Some advisors and investors have the misconception that annuities mature. Unlike a bond or certificate of deposit, an annuity contract does not mature.

In its simplest form, an annuity is a contract between you (the purchaser or owner) and an insurance company. You pay money to an annuity issuer, and the issuer then pays an income stream back to you or to a named beneficiary. Generally, annuities are used to provide income in retirement. In an annuity, your money is tax deferred until you withdraw it. The tradeoff is that if you take your money out before age 59½, you’ll usually have to pay a 10 percent early withdrawal penalty to the IRS, unless an exception applies.

Principal and interest will both automatically continue to earn interest until withdrawn or you reach age 100. You can let your money continue to grow, make withdrawals, or begin receiving an annuity income at any time. If someone mentions that your annuity has matured, be cautious and ask questions.

Annuities can be very complex, which is why it is so important to understand what you own and why you own it. Many annuity contracts have a surrender period. This is your contractual obligation to maintain the assets in the annuity. If you liquidate the account before the surrender period is complete, you’ll be assessed a surrender fee that is usually a percentage of the amount taken out.

Some people view the surrender period as the maturity date of the annuity, comparing it to the early-redemption fees associated with certificates of deposit (CDs). This is a misconception. The annuity can continue after the maturity date, with no renewal required.

Surrender charges are outlined and explained in your annuity contract. If you cancel the annuity before the date stipulated in the contract, you’ll be charged a fee that is a percentage of the amount withdrawn. The surrender charge is usually reduced as the annuity gets older and typically ends after the first 10 years. For example, if you wish to cancel a contract that has been in effect for 5 years, the surrender charge will generally be a lower percentage than it would be if your contract has been in effect for only 3 years. Insurance companies will usually allow you to withdraw a certain percentage, typically 10 percent, of your account annually without having to pay any surrender charge.

So, before you enter into, exchange or cancel your annuity, speak to a trusted financial advisor and make sure you understand any surrender charges or governmental penalties you may incur. Today’s financial marketplace offers investors a dizzying assortment of products and services. This is why it is increasingly important to make informed choices about funding your future. Remember, knowledge is power. Stay focused and invest accordingly.

*Annuity product guarantees are subject to the claims-paying ability of the issuing insurance company.

“Certified Financial Planner Board of Standards Inc. owns the certification marks CFP(R), CERTIFIED FINANCIAL PLANNER(tm) and federally registered CFP (with flame design) in the U.S.”


Darcie Guerin, CFP®, is Associate Vice President, Investments & Branch Manager of Raymond James & Associates, Inc. Member New York Stock Exchange/SIPC 606 Bald Eagle Dr. Suite 401, Marco Island, FL 34145. She may be reached at 239-389-1041, email darcie.guerin@raymondjames.com. www.raymondjames.com/Darcie

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