I was simply trying to put the money in something so I wouldn't foolishly spend it in the meantime, and didn't yet have an understanding of investing (still don't, even though I keep trying/reading/asking/trying).
I don’t blame you for the confusion! This specific type of annuity is really confusing, and I don’t understand all aspects of it.
First, I think you are way too young for this product. The 5% bonus that you spoke of is an annual bonus that, essentially, guarantees 5% annual growth over the first 15 years that you own the annuity as long as you do not take a withdrawal. Second, the lifetime withdrawal option (which is one of the biggest redeeming qualities of this annuity) is only available after you turn 65, so in order to exercise that option you would need to leave the funds in the annuity for another 23 years, 11 of which would not qualify for the 5% bonus leaving you to the mercy of the market and a (probably quite high) annual fee for the mutual fund you choose and CI Investments, the originator of this annuity. Every three years after you originally bought the annuity they do what they call a “reset” where they compare the value of your principle plus all of the guaranteed 5% bonuses to the value of your underlying investment minus fees. If the value of your investment is greater than the value of the principle plus bonuses, then from that point on you will get the 5% bonuses with respect to the reset value instead of the original principle. Additionally, the guaranteed withdrawal benefit base amount will never go down, which should be beneficial for you, no matter what.
Here’s an illustration of the above information taken from the promotional material for this fund (so, remember, it is designed to make this product look good):
-Source:
http://www.sunwiseeliteplus.com/advisors/gmwb_auto_gwb_reset.jsp?lang=ENGFocus on the area to the left of the dotted line. The black line represents the growth of the annuitant’s underlying investment minus fees while the blue bars represent the principle plus 5% annual bonuses. The little yellow dots represent “resets”. If you look at the illustration you will see that in this example the principle invested was $200,000 at age 59 (again, I think you are way too young for this product). The market then really takes off, and you can see the little black line growing much faster than the 5% bonuses represented by the light grey color at the top of the bars for ages 60 and 61. Because the investment minus fees grew faster the principle plus 5% bonuses, when the first yellow reset dot appears at age 61, three years in, the value of the blue bar has been reset to about $350,000, the value of the underlying investment at that time. Moving to age 62, you can see that the next 5% bonus was received on top of the $350,000 amount. I would be willing to bet that this is approximately what has happened to your investment over the past three years. The market grew faster than the 5% bonuses, so you now have a larger base upon which the 5% bonuses will be calculated as long as you don’t withdraw money or for the next twelve years, whichever is shorter. In this illustration the market falls at ages 63-65, so the annuitant receives only the 5% bonuses. There is a reset at age 65 to lock in the base amount for the lifetime withdrawal option for this annuitant.
After withdrawals begin is where my knowledge of these products gets fuzzy. I know that the withdrawal amount is 5% of the base amount, and I know that the base amount continues to “reset” every three years, but I don’t know the terms of these resets after withdrawals begin. Are you withdrawing from the investment account so that the principle amount decreases after every withdrawal or does the withdrawal come from a different CI Investments account so that the market value of the investment can continue to increase or decrease with the market? I've seen different illustrations that imply different stuctures, and I can’t find the information anywhere. Additionally, you will not be able to take the lifetime withdrawal option until you are 65. The other withdrawal option is to receive 5% of the base amount every year for 20 years. I don’t know if or how that process can be expedited nor do I know what kind of fees are involved, but I am guessing that the only way to receive maximum benefits under this 20 year withdrawal option is to take the prescribed 5% of the base out every year for 20 years. It is worth noting that, if your base amount increases during the withdrawal period, then the 20 years may be extended. This is what makes this product exceedingly bad for an emergency/house fund. It lacks the liquidity of other types of investments, since you, essentially, have to pay to get your money back quickly. I would advise you to think of a portion of your $30,000 on hand as your emergency/down payment fund instead of this annuity.
Here’s what you should do: find out as much as you can about the specific withdrawal terms of your annuity. Weigh your options by how quickly you think you will need the money and how much of the current base amount you will be able to get back under different withdrawal schedules. Take your time with this, and don’t feel like you need to act without a thorough understanding of all options. Even though I’ve said that you’re too young for this product and that it isn’t right for your needs, that doesn’t mean you need to take everything out of the account tomorrow. I might even be wrong that this is the wrong product for you. There’s too much that I don’t know about your specific situation and the exact terms of the annuity. Although we on this forum are usually very weary of financial advisors, if you feel overwhelmed by the complexity of this asset, maybe consider interviewing a few fee-based, fiduciary advisors with good references in your area. Ask them if they have experience with Guaranteed Minimum Withdrawal Benefit products/policies. If they’re right for you, they should, at the very least, know what that is. If they have an opinion on this type of product, even better. You don’t need to continue working with the advisor after you have an understanding of and plan for this annuity nor do you need to work with one at all if you feel up to the challenge of learning this stuff on your own.
One last tidbit: according to what I’ve read about GMWB products, the originator of your annuity is allowed to increase their fees at any time with 90 days notice. You have no recourse to such increases. What that means, basically, is that if CI Investments suddenly realizes that they are losing money to annuitants who live longer than they expected or if their investments don’t do as well as they expected, then CI Investments will, probably, increase your fees to make up the difference. It appears that they have done exactly that over the years since 2008’s market crash (in October of 2012, for instance, they increased the fees by .35% which alone is twice what I pay for most of my Vanguard Index Funds). Additionally, with the subsequent bull market of 2011-2013, CI Investments decreased the percent of equities you’re allowed to hold from 90% to 70%. These are both bad signs that CI Investments’s actuaries and risk management teams did their jobs poorly when designing this product. Further, as you mentioned above, this product is no longer being sold, probably because the company realizes that today’s market makes this product extremely risky for them, thus necessitating higher fees and more allocation rules for you (think of the higher fees as premiums for insurance against bad markets and long retirements past age 65). Here’s a link to the history of Sunwise Elite Plus’s fee and rule changes:
http://www.sunwiseeliteplus.com/advisors/swe_changes_may2009_e.html. In my mind, that is just incentive for you to get out of this investment, as prudently as possible, but also as soon as possible without losing more money than you’re comfortable with to the withdrawal method chosen. Remember, don’t do anything until you feel comfortable with your understanding of this annuity and your options in regard to it, but do try to come to that understanding sooner rather than later.
Don’t let the complexity of this asset deter you from investing, especially in low price index funds or ETFs where you can buy well diversified funds with almost any asset allocation for your risk tolerance level. I promise, those types of investments are much more transparent than this monster of complexity. I think you learned your lesson and now know to understand what you’re buying at the time of purchase!
