How do you take advantage of annuities when you aren't retiring and won't need the boost in income they provide?
Well, you have a few options.
Annuities can help retirees maintain a steady stream of income after they've left work, but that isn't the only way annuities can work for you. Unfortunately, you kind of have to reach that retirement decision before you pull the trigger on an annuity.
"If I have an annuitized distribution, but I'm not retiring… that annuitized distribution is going to keep coming in anyway," says Ken Nuss, founder and CEO of AnnuityAdvantage in Medford, Ore. "It seems to me the annuitization was a past event assumed in the question. If that's the case, not sure what you can do. You're going to have taxable income."
Though that doesn't necessarily have to be the case. Eric Meermann, a certified financial planner, enrolled agent and vice president at Palisades Hudson Financial Group in Stamford, Conn., says that a Section 1035 Exchange allows a cash-free like-to-like transfer between different types of insurance products.
"If you have a cash value built up in a variable annuity or a whole-life insurance plan, you can roll it up and do a 1035 exchange to a different type of product," Meermann says. "For people who have expensive variable annuities, we'll go to Vanguard or Fidelity and get them a very low-cost annuity and roll it into that."
If you're continuing to work into retirement age and have plenty of funds, a whole-life insurance plan may be more expensive than you need. In that situation, Meermann advises using a 1035 exchange to transfer the cash value of that plan into a Vanguard variable annuity -- an annuity he typically isn't a big fan of. That move will allow you to invest in equity market and earn a higher rate of return than what they're getting from the insurance company. Just be careful, as some insurance companies have surrender charges that go into effect if you such an exchange.