7 worst annuity mistakes
4. Switching to another annuity
Older versions of variable annuities with payout guarantees that promise a certain amount of money every year for life, no matter what actually happens to your investments, often let you take 6% of your guaranteed amount every year. Newer versions often cap these guarantees at 5%. Your guaranteed value can be much higher than your actual account value, which can make these annuities valuable in a down market. But if you cash out the annuity or switch to another one, you’ll only get to take the actual account value rather than the guaranteed value.
New annuities generally have higher fees and smaller guarantees than the versions sold in the late 1990s to mid 2000s. If your annuity’s guarantee is worth more than its account value, be wary of any broker who wants you to switch (salespeople make a commission when you buy a new annuity). You may also have to pay a surrender charge of 7% or more if you switch out of the annuity within the first seven to ten years.