Three Options for Retirees With an Old (Forgotten) Annuity
Did you buy an annuity in the 2000s? If it’s been out of sight and out of mind since then, it's time to dust it off and start making it pay for your retirement.


If you’re retired with an annuity that was purchased between 2000 and 2015, it’s likely sitting in the financial equivalent of a junk drawer, uncovered and remembered only when you go looking for something else.
I spent six years of that period registered with ING Financial Partners. At the time, ING was one of the biggest providers of variable and fixed annuities. Today, ING doesn’t exist in the U.S., and its insurance and annuity arms have been sold. This is representative of the massive shift in the market during the past 25 years. The companies that once dominated have moved on to new things. The products have also significantly changed and, in many cases, have improved.
This article is a nudge to dust off that old contract and use it for something you care about. After all, you worked hard for the money, so you should get something out of it. Here are three options that will cover most, but not all, situations.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
1. Surrender the annuity
I recently met a husband and wife with about $1 million in annuities purchased in the early 2000s. Despite having the annuities for this length of time, the couple had made only about $100,000 in the accounts. Reasons: a combination of poor investment choices, expensive products and a low-interest-rate environment.

At age 26, I earned my CERTIFIED FINANCIAL PLANNER™ certification. I also hold the IRS Enrolled Agent license, which allows for a unique approach to planning that can be beneficial to retirees and those selling their businesses, who are eager to minimize lifetime taxes and maximize income.
The surrender option makes sense for those who are looking for liquidity over income. It does not make sense for anyone in the surrender period and likely does not make sense for anyone with large, unrealized gains. That’s why it was important to point out that their gains weren’t significant relative to the surrender or account value.
Unlike a taxable investment account, annuities are tax-deferred until withdrawn. At that point, they are taxed on a LIFO (last-in, first-out) basis, as income, not capital gains. In plain English, that means the clients would show $100,000 in additional income in the year surrendered on the front page of their income tax return.
2. Turn on the income
This is often referred to as “annuitizing,” which is also often an incorrect characterization. While annuities allow you to turn on income via annuitizing, most people turn on an income stream via a guaranteed minimum income benefit (GMIB). These are “riders” that you pay for and that guarantee you income for the life of the income beneficiary. It is important to understand guarantees are subject to the claims-paying ability of the issuing insurance company.
Many of the deferred variable annuities that we have come across with prospective clients are underwater. This means that the income benefit is higher than the account value. In this case, the best option may be to elect to start income from the current annuity contract. If the account value and income value are similar, you may be able to get more income from a new annuity.
3. Exchange the old annuity for a new one
In the example I gave earlier, the poor performance of the couple’s annuities was due in part to expensive products and low-interest-rate environments. Deferred variable annuities were plagued by the former. Fixed annuities, by the latter.
Many of the deferred variable annuities of the early 2000s came with all-in expenses of over 3%, annually. These types create quite a hurdle for even the best underlying investments. In the past decade, costs and structures of variable annuities have come down significantly.
If you are just looking for tax-deferred accumulation, the odds are that a new product would be less expensive. The IRS allows you to exchange an old annuity for a new one, deferring the gain until you take money out. This is referred to as a 1035 exchange.
Fixed annuity guarantees move up and down with interest rates which means the period from 2010 to 2022 was quite painful. However, in the past two years, the guarantees have moved up significantly. We have had clients who were able to generate more than 30% more income by exchanging their old annuity. Those rates have decreased since the Fed started to cut, but are still quite a bit higher than they were previously.
Look at different scenarios before taking action
One cool thing you can do within most financial planning software is run “what if” scenarios that can illustrate surrender vs income vs exchange. Your odds of success will go up or down based on the choice you make. You can access a free version of the software we use.
Lastly, you may have noticed that I didn’t mention leaving the annuity to your kids as one of the options. Nine times out of 10, this is not a good move. I’ll cover why in a forthcoming article.
Related Content
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

After graduating from the University of Delaware and Georgetown University, I pursued a career in financial planning. At age 26, I earned my CERTIFIED FINANCIAL PLANNER™ certification. I also hold the IRS Enrolled Agent license, which allows for a unique approach to planning that can be beneficial to retirees and those selling their businesses, who are eager to minimize lifetime taxes and maximize income.
-
Stock Market Today: Good Feelings and Solid Data Lift Stocks
Resilience and de-escalation defined another generally positive day for financial markets.
-
Five Home Upgrades for Surviving Record-Breaking Heat
With global temperatures expected to hover at record highs for years to come, now’s the time to upgrade your home for long-term heat resilience.
-
Stock Market Today: Good Feelings and Solid Data Lift Stocks
Resilience and de-escalation defined another generally positive day for financial markets.
-
Should You Ditch Your Medicare Advantage Plan? Most People Do
If you want to switch your Medicare Advantage plan or enroll in original Medicare, you're not alone. Here's when it's a good idea and how to go about it.
-
The 401(k) Mistake That Could Cost You Millions in Retirement Savings
Thinking about reducing your 401(K) contributions in the current market? Here are six reasons why you may want to reconsider.
-
What the HECM? Combine It With a QLAC and See What Happens
Combining a reverse mortgage known as a HECM with a QLAC (qualifying longevity annuity contract) can provide longevity protection, tax savings and liquidity for unplanned expenses.
-
721 UPREIT DSTs: Real Estate Investing Expert Explores the Hidden Risks
Potential investors need to understand the crucial distinction between a REIT's option to buy a Delaware statutory trust's property and its obligation.
-
I'm an Insurance Expert: Yes, You Need Life Insurance Even if the Kids Are Grown and the House Is Paid Off
Life insurance isn't about you. It's about providing for loved ones and covering expenses after you're gone. Here are five key reasons to have it.
-
Stock Market Today: Tesla Drags on Stocks Amid Musk-Trump Feud
Sentiment has soured between President Trump and his once-loyal ally, Tesla CEO Elon Musk.
-
I'm 60 With a $4.2 Million Nest Egg. Can I Stop Saving and Start Spending Until I Retire at 65?
Should I continue contributing to my 401(k) or treat myself now?