Is My Annuity Keeping Up, or Am I Leaving Money on the Table?

Think about the day you bought your annuity. You met with an advisor. You looked at the numbers on the page. You picked what looked best at that moment. Then you signed the paperwork, and life went on.

Meanwhile, the annuity market kept moving. Carriers rolled out new income riders. Fees dropped on many contracts. Interest rates shifted. Long-term care features got better. Some contracts that were top of the market five or ten years ago are still competitive. Others have fallen behind, and their owners have no idea.

The tricky part is that your annuity doesn't send you a note when the market passes it by. Your statement keeps showing the same numbers. Your check keeps arriving. Everything looks fine. But behind the scenes, the same money could be doing more in a newer contract.

How the annuity market has changed

Annuities are not what they were a decade ago. Carriers compete for your money, and that competition has pushed several things in the buyer's favor.

Income rates have improved

Roll-up rates on new income riders often sit at 6% to 8% today. Ten years ago, 4% to 5% was more common. Payout percentages at older ages have also crept up. A 6% payout at age 70 was rare in 2015. Today it's standard on many contracts.

Fees have dropped on many contracts

Rider fees that used to run 1.35% to 1.65% per year are now often 0.95% to 1.20% for the same feature set. Variable annuity M&E charges have also come down as fixed index annuities took market share.

New riders exist that didn't before

The biggest change is the long-term care rider. Many newer income riders double or even triple your monthly payout if you need care, and the extra payment can go to any use you choose. A decade ago, this feature barely existed.

Guarantees are stronger

Enhanced death benefits, joint-life income with smaller payout reductions, and better return-of-premium guarantees are all more common today. Carriers know buyers expect more, so they include more.

The 5 dimensions to compare

To answer the question honestly, you have to compare your contract against today's market on five specific things. Not just one. All five together.

1. Roll-up rate

This is how fast your income base grows each year while you wait to turn on income. A 6% roll-up on a 10-year deferral doubles your income base. A 4% roll-up over the same period only grows it by about 48%. Big difference in eventual income.

2. Payout percentage at your age

This is the fixed percentage the carrier will pay you from your income base every year for life. Modern GLWB riders usually pay 5% to 6% at age 65, 5.5% to 6.5% at 70, and 6% to 7% at 75. If your contract pays less at your age, a newer one might pay more.

3. Total annual fees

Add every fee you're paying: M&E, rider fees, admin fees, and sub-account expenses if it's a variable annuity. Compare that number to what an equivalent contract would charge today. On many older contracts, fees have not dropped even though the market average has.

4. Available riders

Do you have a long-term care rider? A joint-life option that protects your spouse? An enhanced death benefit for your kids? If your current contract is missing riders that newer contracts include for the same or lower cost, that's a real gap.

5. Carrier strength

Your annuity is only as strong as the company backing it. A.M. Best, Moody's, and S&P all publish ratings. If your carrier has been downgraded since you bought, or if it was never top-tier to begin with, that matters. A slightly lower payout from an A++ carrier can be worth more over 30 years than a higher payout from a weaker one.

Old contract vs today's typical market

Here's what the numbers often look like on a 10-year-old fixed index annuity compared to a similar contract issued today. Not every older contract looks like this, and not every new one either. But this pattern shows up often enough that it's worth knowing.

Signs your contract may be outdated

You don't need a full audit to spot the warning signs. If two or three of these describe your annuity, a review probably makes sense.

• Your roll-up rate is under 5%.
• Your payout percentage at your current age is under 5%.
• Your rider fee is over 1.25%.
• Your total annual fees are over 3.0% (variable) or over 1.5% (fixed index).
• You have no long-term care rider on the contract.
• You have a spouse but no joint-life income option.
• Your carrier's financial rating has been downgraded since you bought.
• You bought the contract more than 8 years ago.

Signs your contract is still excellent

Not every older annuity is behind the market. Some are actually better than what's available today, especially if they were issued during a high-interest-rate window or with a legacy carrier that offered more generous terms. Watch for these positive signs.

• Your roll-up rate is 7% or higher, guaranteed for the life of the contract.
• Your payout percentage at your target age is 6% or higher.
• Your total annual fees are under 1.30%.
• Your carrier is rated A+ or better and has held that rating.
• You already have a long-term care rider or income doubler attached.
• Your surrender charges have expired, giving you flexibility either way.

If your contract shows most of these positive signs, our team's honest answer is usually the same: keep it. A great annuity is worth defending, not replacing.

What a 1035 exchange is, and when it makes sense

A 1035 exchange lets you transfer the account value from one annuity into another annuity without triggering any income tax on your gains. It is named after Section 1035 of the tax code. This is the standard way to move from one contract to another when a better option exists.

A 1035 exchange makes sense when three things line up:

1. The new contract's numbers beat your current one on multiple dimensions, not just one.
2. Any remaining surrender charge on your current contract is more than made up for by the gains in the new one.
3. The new carrier is at least as strong financially as your current one.

It does not make sense to exchange just to get one slightly better feature, or to move to a weaker carrier, or when the surrender charge would eat more than the improvement is worth.

The math on staying vs moving

Here's the calculation our team runs every time. It's simple once you see it laid out.

Start with the cost of leaving. Say your current annuity has a 4% surrender charge left on a $250,000 account value. That's $10,000 to walk away.

Next, calculate the annual improvement in the new contract. Say the new contract's income at age 70 works out to $18,500 per year, and your current one works out to $15,200. That's $3,300 more per year, every year for life.

Now compare. If you're 65 and expect income to run for 25 years, that's $82,500 in additional lifetime income. Even after the $10,000 surrender charge, you're ahead by $72,500. The math says move.

Flip the numbers. If the new contract only pays $500 more per year and the surrender charge is $10,000, you'd need 20 years just to break even. The math says stay.

When it's worth a review, and when it's not

Not every annuity needs to be audited. Here's when a review pays off, and when it's fine to leave things alone.

A review makes sense when:

• You bought your contract more than 5 years ago.
• You've had a major life event (retirement, spouse's death, health change).
• You're within 5 years of turning on income.
• Your surrender charges have expired or are close to expiring.
• You can't clearly explain what your contract does.

A review is less urgent when:

• You bought your contract in the last 2 years.
• You're already taking income and can't change the terms.
• You have a legacy contract with terms that no longer exist (high roll-up rates, generous payouts).
• You've had a review in the past 12 months and nothing has changed.

The bottom line

You can't tell from your statement whether your annuity is keeping up. The check keeps coming. The balance keeps growing. But the same money in a different contract could be doing more.

Sometimes a comparison shows your contract is still excellent, and the right answer is to leave it alone. Other times it reveals thousands of dollars of missed income or double the long-term care protection sitting in a newer contract. Either way, once you know, you can stop wondering.

The market rewards people who check. If you haven't looked at your annuity next to today's options in the last two or three years, now is a good time.