Is Annuity inside 403b the right move?

Added: 2026-05-08

[00:00:00]Dave Ramsey told someone their 166,000 annuity was a massive mistake. Here's the thing, he's actually right about certain aspects.

[00:00:09]He's completely missed the solution.

[00:00:11]Let's watch this clip together. This has to do with an old 403b, um but earlier in the year, back in April, we went to the financial planning services that my company sponsors and pays for. Then I had been kind of having sleepless nights cuz my my value would go from I'd lose like $20,000, you know, and then I'd get Anyway, there was a lot of risk. So, they suggested that I move some money, 166,000, into a traditional annuity within my 403b retirement account, guaranteed. So, right now 30% of my 577,000 that's in there is now in this annuity.

[00:00:52]And now that I've started listening to you, we're following your steps, I'm starting to realize that probably was a huge mistake.

[00:00:59]>> Yeah, it was. Um and I don't know what to do. Um I would contact them and see if they can reverse that and put it back into mutual funds. So, they put you in something inside of a retirement account with a surrender charge. Ooh, I don't know.

[00:01:11]>> Oh, these guys are absolute screwballs.

[00:01:14]So, I mean, find out what your penalties are, what your surrender charges are, and and you may be stuck there, but the other thing you got to weigh it against is you're probably making 2% on this thing instead of 10 or 12.

[00:01:23]>> Exactly.

[00:01:24]>> And so, if you're if you're if your surrender charge is 10%, take it and move it and put it in something that makes 10% more the first year, you recoup. I mean, you got two sets of penalties on this money now if you get if you need to get to it. What is an annuity? It's a savings account with a life insurance company. There are two types of savings accounts with life insurance companies, fixed and variable.

[00:01:48]Fixed pays you basically a CD rate, 1 or 2% right now, which is what she's in.

[00:01:54]And it grows inside of an annuity tax deferred like a 401k or an IRA does, and you pay extra fees for the annuity. So, here's what's happened. You have a tax deferred 403b, and they moved her into a substandard, horrible rate of return that she's paying extra fees for and is also tax deferred. That's redundant.

[00:02:15]There's tax deferral on the tax deferral. You can't double dip on this.

[00:02:18]You get one shot at this, and she already had all that for free because it's inside the 403b. It didn't need to be in an annuity. But she got scared with her risk tolerance, with the stuff moving back and forth, and so these goofs dropped her into this thing. Uh why is that bad? Cuz then they put you on a surrender charge, and then it takes 7 years to be able to get your money moved out of there without getting hit with some kind of a charge and gut punched. And so, there is zero times, never, not a case anywhere that a fixed annuity is the answer. Never.

[00:02:51]Okay. Dave is right about the annuity.

[00:02:54]Mine have been structured terribly. A high surrender charge annuity trap inside a 403b for someone about to retire, that can be detrimental to this lady whom I need the money very soon.

[00:03:06]And it's also true that both annuity and 403b offer tax deferral, and you cannot double dip into this benefit. But Dave forgot to ask how long the contract lasts, and if this fixed annuity has an income rider attached to it that allows her to start with sure guaranteed lifetime income. He saw one potential bad annuity structure and generalized it into never buy fixed annuity. That's like getting bit by a dog once and deciding you'll never own a pet again.

[00:03:37]One bad experience, one wrong dog, and suddenly all animals are dangerous. The problem was that dog, not animals, right? Let's say she hasn't made the move yet. Here's an alternative solution. If she's 60, about to retire, and has no other money to work with, and she doesn't want market volatility, she fears that she'll run out of money during her retirement. Here's my process. First question I ask, how much do you need per year to live on? Let's say she needs about 60k per year. Second question, what's your social security covering? Maybe 30k? So, she's got another 30k income gap to fill for the rest of her life. In other words, she needs another 30k annual income guarantee for the rest of her life. Now, that gap that gap, the 30k income gap, is what we're actually solving for. So, I'll take a portion of her 403b and put it into a fixed index annuity. Now, why fixed index annuity? Because fixed index annuity can contractually guarantee that you will never lose a penny and allows you to capture some upside from the market. And this lady doesn't like too much market volatility, yet she wants to participate in the growth of the stock market. Now, she's close to needing this money, right? She doesn't need market risk anymore. She needs certainty and growth. The rest of her 403b, that stays invested, so it can stay aggressive, and that's the structure that I'll put her in. One portion provides for the income gap. The other portion keeps working in the market. If she won't, why shouldn't she put all her money in mutual funds just like what Dave had suggested?

[00:05:16]Because that leaves her exposed to market drop right when she's about to start pulling the money. No one, not even the best trader in the world, can guarantee 100% what the market will do tomorrow. And simply expecting the market to go up is a hope, and hope is not a strategy. If something like 2008 happens again during her retirement years, do you think she can afford to wait another 5 years just to just to break even? Where is she going to get the money from, right? Now, if she already made the move into this fixed annuity that Dave mentioned, don't panic. First thing, is she still in the free look window? If yes, we can cancel it clean, no penalty. So, this free look period functions just like 100% money back guarantee. If she's past that free look period, the IRS says that we can potentially exchange the old annuity with a better annuity inside 403b. Good news is that by switching your annuity inside a 403b, the insurance agent is legally required to maintain the account value in order to have better rates, stronger guarantees, or extra benefits like bigger death benefits, or higher guaranteed income rate. If she wasn't able to exchange the annuity inside of her 403b, then I would suggest her to leave that annuity sits there and grows.

[00:06:33]Because the annuity has the ability to guarantee not to lose a penny, so she can experience more stability in her portfolio. And if she wants more upside, then she can move the rest of her 403b into something that has more upside potential. So, Dave mentioned that annuity is basically a savings account with the life insurance company. I disagree with that statement because there's no way a savings account can lock in the interest rate when the banks can change the rate anytime. Nor can it guarantee lifetime income like an annuity so that you never run out of income during your retirement. So, that's the benefit that you get by locking the rate and the money inside the annuity contract. And then Dave said there were two types of savings account with life insurance companies, fixed and variable. Now, we have already debunked that savings account with the bank is different from an annuity. An annuity is a contract that you sign with the insurance company in exchange for its benefit. Let me show you a diagram. When you're looking to buy that annuity or just wanting to know the basics.

[00:07:41]Starting from the top, there are immediate and deferred annuity.

[00:07:45]Immediate means you can turn on the income stream after a month. Deferred annuity means you delay your income or not taking your income at all. The second layer you should consider is the accumulation method of annuity contract.

[00:08:00]There are three basic types, fixed, fixed index, and variable. Fixed annuity locks in the guaranteed rate, currently 4.5 to 5.5% for 3 to 10 years. Fixed index annuity tied to an index like the S&P 500 with a 0% floor, protecting your principal from losing a penny while letting you capture partial upside from the market. Typically capped at 5 to 12%. Variable annuities put you in control of sub accounts, stocks, bonds, mutual funds for higher growth potential, but they come with a market risk, higher fees, often 2 to 4% annually, including the riders. Now, here's a diagram for you to look at. You see this fixed, fixed index annuity, and variable annuities with different risk tolerance.

[00:08:51]After you choose the type, the next thing you should know is the way you fund your annuity contract, usually a lump sum payment [music] or periodic payment. If you would take out income in the future for this annuity, then you should decide whether this income is for you only, or do you want it to cover two people or more? Next thing you should know is that do you want this annuity to pay as a lifetime guaranteed income, or do you want it to pay only for a certain period of time? And if you decide not to take out any income and maximize the death benefits for your beneficiary, then there's way to structure it as well. As you can see, there are many ways to structure an annuity, and it's definitely not a one-size-fits-all solution. So, saying that there is zero times, never, not a case anywhere that a fixed annuity is the answer can can be a bit absolute. Now, Dave has helped a lot of people getting out of debt, and I respect that, but it is just hard for anyone to know all the financial products that there is. Just like you wouldn't go to a general practitioner if you have a certain type of cancer, right? So, when it comes to your retirement fund that you worked so hard for your entire life, you should always do your own due diligence. It doesn't make sense to save for your entire life and then decide where your savings should go in a rush, right?