Annuity Contract Check-Up: Key Times to Review Your Policy

Just like your financial goals evolve over time, so too should your review of your annuity contract. Think of your annuity as a financial vehicle designed to help you reach a specific destination – perhaps secure retirement income or long-term financial growth. To ensure you stay on the right road and arrive at your intended destination, regular check-ups are crucial. Annuities aren’t static; life changes, financial markets shift, and your needs may evolve. Therefore, establishing a schedule for reviewing your annuity contract is a vital part of responsible financial management.

A good starting point is an annual review. Setting aside time once a year to examine your annuity contract is a proactive measure. This annual check-up doesn’t necessarily mean you’ll make changes every year, but it provides a consistent opportunity to assess whether your annuity is still aligned with your current financial situation and goals. Consider it like an annual physical exam for your financial health – even if you feel fine, a check-up can catch potential issues early or confirm you’re on the right track.

Beyond annual reviews, significant life events are critical triggers for revisiting your annuity contract. These events often necessitate adjustments to your overall financial plan, and your annuity should be part of that consideration. For instance, marriage or divorce can dramatically alter your beneficiary designations and income needs. The birth or adoption of a child might shift your focus towards long-term wealth transfer and legacy planning, which could impact how your annuity fits into your estate plan. A major career change, whether it’s a new job, a promotion, or retirement, can significantly change your income streams and financial priorities, requiring a reassessment of your annuity’s role in your overall retirement strategy. Even an inheritance can be a trigger, as it might change your overall asset allocation and potentially your need for the specific benefits your annuity provides.

Changes in your financial goals or risk tolerance also warrant a review. Perhaps when you initially purchased your annuity, your primary goal was aggressive growth. However, as you approach retirement, your priority might shift to capital preservation and guaranteed income. If your risk tolerance has decreased, you might want to explore options within your annuity contract, if available, to adjust your investment strategy or income payout options to better reflect your more conservative approach. Conversely, if you’ve become more comfortable with risk, you might consider reallocating assets within a variable annuity to pursue potentially higher returns, if suitable and aligned with your long-term goals and time horizon.

Furthermore, keep an eye on changes in market conditions and interest rates, especially if you own a fixed or fixed-indexed annuity. While fixed annuities offer a guaranteed interest rate, prevailing interest rate environments can impact the competitiveness of your current rate compared to new offerings. While you likely can’t change the rate on an existing fixed annuity, understanding the broader interest rate landscape can inform your overall financial strategy and future annuity decisions. For variable annuities, market fluctuations directly impact the value of your underlying investments. While you shouldn’t react to every market dip, periodic reviews in light of market performance help you ensure your asset allocation within the annuity remains appropriate and aligned with your risk tolerance and time horizon.

Finally, be mindful of contract milestones. Many annuities have surrender charge periods, which are timeframes during which withdrawing funds may incur penalties. As you approach the end of the surrender charge period, it’s a good time to review your annuity. Is it still meeting your needs? Are there better options available now that you have greater flexibility to access your funds without penalty? Also, some annuities have specific features that become available or change at certain points in time, such as step-up benefits or income rider adjustments. Understanding these milestones and reviewing your contract around these times ensures you are maximizing the potential benefits and making informed decisions about your annuity’s future.

In summary, proactively reviewing your annuity contract is essential for ensuring it remains a valuable component of your financial plan. Regular annual reviews, coupled with reviews triggered by significant life events, changes in financial goals, market shifts, and contract milestones, will help you stay on track to achieve your financial objectives and make any necessary adjustments along the way.