Case Study: Replacing Underperforming Annuities and Idle Savings with a Coordinated Retirement Plan

The Situation

Robert and Carol are a retired couple in their mid-sixties with a foundation already in place: two annuities paying steady, predictable income that were working exactly as intended. Those contracts were never part of the conversation. What brought them to the table was everything else.

Alongside the income annuities, the couple held two separate accumulation annuities totaling $320,882. These were different products with a different purpose—they were supposed to grow. They hadn’t. The values had lagged significantly behind the original illustrations, and the couple had been paying rider fees for years on contracts that were no longer delivering the growth they were sold on. In addition to the underperforming annuities, they had $200,000 in bank savings earning essentially nothing.

Between the stagnant annuities and the idle cash, $520,882 was doing very little work. More importantly, neither annuity included any provision for long-term care—a real gap given Robert’s health history. The couple had the assets. They didn’t have a plan.

The Financial Planning Challenge

Any recommendation involving the surrender of existing annuity contracts demands a clear answer to one question: is the client genuinely better off moving, or is this simply a transaction? In this case, the advisor identified three meaningful gaps the existing structure was failing to address:

Stagnant accumulation.  The accumulation annuities were no longer crediting growth at the rates originally illustrated. The clients were bearing ongoing costs without receiving the benefit those costs were supposed to fund.

No long-term care provision.  Neither annuity included a care benefit rider. A multi-year care event for either Robert or Carol could consume their entire liquid position in a matter of years, with no dedicated funding mechanism in place.

Tax drag on idle cash.  As retirees drawing Social Security, every dollar of fully taxable bank interest carried real cost—both in direct tax and in the risk of pulling more Social Security income into taxable territory. The $200,000 in savings needed a more efficient home.

The Premium Bonus: Immediate Recovery of Lost Ground

A critical factor in making the annuity replacement work in the clients’ favor was the premium bonus available on the new Fixed Indexed Annuity. The $320,882 surrendered from the underperforming contracts entered the replacement annuity with an immediate starting benefit base of $391,476—a $70,594 uplift applied at contract inception.

Premium Paid $320,882

Premium Bonus Applied +$70,594

Starting Benefit Base $391,476

This immediate uplift serves two purposes. First, it substantially offsets the surrender costs incurred in exiting the old contracts—making the replacement economically sound from day one. Second, both the long-term care benefit and the death benefit are calculated from the higher $391,476 base, not the net premium surrendered. The clients entered the new contract ahead of where they left the old ones.

The Solution: A Two-Component Coordinated Portfolio

The $320,882 from the surrendered annuities funded a new Fixed Indexed Annuity—the “safe floor” of the household strategy, providing principal protection, index-linked growth potential, and a long-term care benefit. The $200,000 in bank savings moved into a managed investment account—the “growth engine,” invested primarily in a direct indexing equity strategy with a tax-exempt municipal bond allocation. Together the two components form a unified $520,882 household portfolio, each dollar matched to a specific purpose.

▸  FIXED INDEXED ANNUITY$320,882 from surrendered annuities • 61.6%	▸  INVESTMENT ACCOUNT$200,000 from bank savings • 38.4%
Protection & Care Foundation Principal protection + index-linked growth potential Premium bonus → benefit base opens at $391,476 ADL long-term care benefit: $86,021/yr up to 7 years† Projected Year 10 benefit base: $602,146† Growing death benefit from day one	Growth Engine & Tax Efficiency ~80% direct indexing equity strategy (S&P 500) ~20% intermediate municipal bond fund—federal tax-exempt Tax-loss harvesting built into the equity sleeve Full liquidity; no surrender period Combined household monitoring with loss-threshold alerts
Household Monitoring  Both components are tracked together as a single $520,882 household portfolio, with automated loss-threshold alerts on the investment account and full principal protection on the annuity. Clients receive weekly portfolio summaries and 24/7 access to a secure online portal.

What the Restructuring Actually Changed

The clearest way to evaluate this plan is to compare the household’s position before and after across the dimensions that matter most to a retired couple.

	Before	After
Accumulation growth	Below original illustrations	Index-linked FIA + equity growth account
Immediate benefit base	$320,882 (net surrender value)	$391,476 (premium bonus applied)†
Long-term care protection	None	ADL Benefit: $86,021/yr × 7 years†
Bank savings	$200,000 earning near-zero interest	Deployed: direct index equity + muni bonds
Tax efficiency	Fully taxable (annuity & savings)	Tax-loss harvesting + tax-exempt bond income
Portfolio monitoring	None	Unified household monitoring + weekly alerts
Death benefit	Account value only	$391,476+ growing benefit base†

Two Concepts Worth Understanding—and Sharing

Two elements of this strategy are worth pausing on, because they represent approaches that many clients have never been introduced to.

Direct Indexing

Rather than buying a single index ETF, direct indexing replicates the index by purchasing individual stocks in the same sector weights—giving the client direct ownership of the underlying holdings. That ownership enables tax-loss harvesting: when individual positions temporarily decline, they can be sold to realize a tax loss that offsets gains elsewhere, then immediately replaced with similar stocks to maintain full index exposure. Over time this systematically reduces tax drag—an advantage unavailable in a standard fund structure.

The ADL Benefit as a Long-Term Care Mechanism

The Fixed Indexed Annuity in this portfolio includes an Activities of Daily Living (ADL) benefit rider that accelerates income distributions when the annuitant can no longer perform a defined number of ADLs independently. Here, the benefit provides up to $86,021 per year for seven years—drawn from a benefit base that entered at $391,476 thanks to the premium bonus and is projected to reach $602,146 by year ten. For a client with a known long-term care exposure and no standalone LTC policy, this converts a significant portion of the portfolio into a self-funding care reserve without requiring separate underwriting.

The Professional Takeaway

Annuity replacement carries a burden of proof—and rightly so. This case clears that bar on three grounds: the existing accumulation contracts had stopped performing as illustrated, a care gap was going unaddressed, and a premium bonus on the replacement contract immediately restored and exceeded the value being left behind. The income-producing annuities were never touched. The replacement was limited precisely to the contracts that had stopped doing their job—a distinction that matters both for client communication and for suitability documentation.

If you have clients holding accumulation annuities that haven’t grown as projected, or who are sitting on cash with no deployment strategy, a structured review is worth initiating. The Wealth Solutions Network can support that conversation.

Contact Greg DuPont: greg@gsdupont.com

† Non-guaranteed. Projected values, benefit base growth, and ADL benefit amounts are illustrative and based on current assumptions. Actual results will vary.

Annuity replacement involves the surrender of an existing contract which may result in surrender charges, tax consequences, and loss of existing benefits. Clients should carefully review all costs and benefits before replacing an existing contract.

Past performance is not indicative of future results. Hypothetical performance does not represent actual client returns. Investing involves risk including potential loss of principal. Tax-loss harvesting does not guarantee a profit or protection against loss. Municipal bond income may be subject to state and local taxes.

This case study is provided for educational purposes only and does not constitute investment advice. Client details including names have been changed to protect privacy. ©2026 Simplicity Group. All Rights Reserved.