Page 176 - Ready Set Retire

Stephen J. Kelley

portfolio you would have made more, but because we can’t
know that in advance we diversify, allowing the losers to offset
the winners, resulting in an averaged return, which is less than
the broad market’s performance in most years as represented
by the S&P 500. So when you diversify you aren’t getting all of
the up, but you are participating in the down, unlike in the fixed
index annuity.

8. “I DON’T LIKE SURRENDER CHARGES.”

Surrender charges are voluntary and self-imposed if more than
a 10% penalty-free withdrawal is made in a year. Let’s say you
had a charge as high as 12% (worst case) for an amount taken
above the 10% penalty-free withdrawal. Let’s use the example
of a $20,000 withdrawal from a $100,000 account. The first
$10,000 is penalty free. The second 10,000 withdrawal would
incur a 12% charge ($1,200). $1,200 is 1.2% of your $100,000
account. Let’s also assume that you made 8% on your
account’s growth in the same year. Effectively, what you have
done is to withdraw 20% and reduced your 8% interest to 6.8%
because of the fee. I tell people in the rare cases when they
need over 10% to take it. It’s not the end of the world.

I understand printed surrender charges, which are disclosed
before you buy an annuity, seem scary. “What if I need my
money and I have to pay a fee to get it?” is likely what you are
thinking. But…have you ever signed a prospectus that basically

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