Monitoring Your Annuity After Purchase

Annuities offer many unique features and benefits along with guarantees not found in other investment or savings vehicles. As such they can be somewhat complex involving many moving parts that must work together so that they can perform as expected. On the surface, the expectation of an annuity is fairly simple – money in; interest earned; money saved; and money out, either through withdrawals or income.  But, when the unique features and guarantees of annuities are layered on, the complexities can mount fairly quickly, so the monitoring of your annuity after purchase becomes very important.

Here are some of the key elements of an annuity that should monitor be monitored to ensure that it performs as expected:

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Financial Condition of the Issuing Insurer

One of the bigger draws of annuities is their safety, and the primary factor used to determine their safety is the financial strength of the issuing insurer.  As an obligation of the company, annuities are only as safe as the ability of the issuing company to cover all of its obligations from its reserves.  An annuity that is purchased from a financially strong company, as measured by its balance sheet and the level of its reserves and capital surplus is considered to be extremely secure. These companies receive the highest ratings from the independent ratings agencies, such as A.M. Best and Moody’s.  If your annuity was issued by a lower rated company (less than an ‘A’ rating), it is important to monitor the financial condition of the company. The ratings agencies provide continuous data and assessments on their conditions.

Rate Guarantees

Fixed annuities generally offer a high fixed rate that is guaranteed for a specific period of time, from one to 10 years.  When the guarantee period expires, the rates will be adjusted using a formula.  In some contracts, the finer print may indicate that the formula is subject to change which could cast a shadow over future rate expectations.  It would be important to monitor any changes in the formula that could impact future rate adjustments. 

Additionally, most annuities offer a minimum rate guarantee which provides a floor beneath which they cannot adjust their rates or you are given the option to bail out of the contract without penalty.  If rates decline, your annuity should be monitored closely so that, if the rates approach the floor, you can begin to assess your options.  Rates are typically adjusted upon the anniversary of the contract date. 

Yield Performance

The interest rates of annuities are generated from the overall return generated by the insurer on its investment portfolio. Insurers with poor investment performance may credit their annuities with a lower rate than better performers.  Even though your insurer may credit rates well above the minimum guarantee, if you find that they consistently fall below rates offered by other companies, you may want to consider exchanging your annuity (through an IRC sanctioned 1035 Exchange) with that of another insurer.  It is important to keep in mind that you could be subject to surrender penalties if the exchange occurs early in your contract.

Surrender Charges

You’ve invested in your annuity for the long term, so, perhaps the early surrender fees that are stated in the contract don’t concern you, especially because you know that you can withdraw 10% of your account value without incurring a fee.  Circumstances do change, however, and you may have a need in the future to access a large portion of your funds in the event you incur an emergency expense.    While these surrender are fixed at the time of issue, it would be important know what they may amount to each year in anticipation of the need to withdraw some funds.

Variable Returns

If you own a variable annuity then you know that your expectations are tied to the performance of the investments in the separate accounts. Since you make the investment decisions regarding the allocation of funds among the various stock and bond accounts, you should be able to manage your expectations as well.  In order to do that, it is important to monitor the investment performance of your separate accounts to ensure that the return on your portfolio is on track.  If you have allocated your funds with consideration for diversification, balance, and your risk tolerance, it should perform well over the long term, however, it is important to monitor your portfolio to keep it in balance and ensure that is meeting your expectations.


Monitoring your annuity may seem as mundane as watching the paint dry. After all, most annuities perform as expected, but they do require a big commitment of your funds over a long period of time which means any small, unexpected change or adjustment could throw things off track.  A thorough review of your quarterly or annual statements is essential in monitoring your annuity, and make sure you work with a competent and trusted broker or company that can provide responsive customer service and answers to your questions.

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