Kimberly Lankford from Kiplinger’s has some advice for people who are considering cashing out their variable annuities that have lost money over the past few years: don’t, especially if your variable annuity has an income guarantee. When you cash out a variable annuity with a guaranteed minimum income benefit, you are only entitled to the current value of your investment; whereas if you keep it, you have the right to a yearly withdrawal of your initial investment (or even a percentage of the higher value, if it goes up).
Also, guarantees offered on today’s annuities tend to be far less generous than those offered in better economic times, Kimberly says. Be wary of cashing out if you think there’s a chance you’ll buy another annuity in the future.
Don’t forget the increased taxes you’ll have to pay on the entire annuity value if you cash out, as well as any possible surrender charges. Check with a financial advisor or other trusted source before making these decisions.