Is My Annuity Safe?

by Neal Frankle, CFP ®

safe

A few days ago I received this email from Sue, a friendly Wealth Pilgrim:

What happens to folks who have their retirement funds in annuities? If the insurance companies are threatening to go belly-up, won’t some of these annuities be threatened?”

I have a three-part answer to this.

First, you must find out if the insurance company holds your money in their general or separate account. If they hold it in the general account and they go bankrupt, get in line. You become a general creditor of the company. Depending on what state you live in, your account could have some guarantees set up by the guarantee fund. But let’s face it. A guarantee today isn’t the same as it was several years ago. Sorry…that’s just the way it is.  But there is some good news.

If your money is held in a separate account, your assets are protected from the claims of the other insurance company’s creditors. This is a much better position to be in.

So the most important action step for you is to find out which account your money is held in.

Now, if you have “annuitized” your annuity — selected a stream of payments for some period of time — the same holds true except you don’t have the guarantee fund backing you up. Just want you wanted to hear….eh?

The bottom line is that there are risks to annuities just as there are with any investment.  None-the-less, you can still protect yourself.  Here’s how:

1. If you have an annuity, make sure the company is as safe as possible. Call the company and ask for a ratings report in writing or go to their website to learn more. If need be, move your money to a safer company and one that will keep your money in a separate account.

2. If you have already annuitized your annuity, good news. You don’t have to do anything — because you can’t. Once you’ve made the decision to annuitize, you can’t do anything about it so it makes no sense to worry.

3. If you don’t have any annuities — don’t buy any.

I’ve never liked annuities because I’ve rarely seen them work out for clients. Of course this isn’t always the case…it’s just my experience. .

What do you think? Do you have any annuities? Have you had any good or bad experiences with insurance companies?

 

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