First of all, the only reason, and I mean the only reason these advisors are asking you to lock up your money is because of the commission structure of these annuities. That’s how the insurance company makes sure they can pay brokers commissions of up to 15% on these investments. If you want to know how much your agent is earning off of your money, just take a look at the surrender penalty. It almost always equals the commission.

Just look at the underlying securities you’re investing in when you buy a variable or equity indexed annuity. They work just like mutual funds or index funds, don’t they? What if you were to purchase a mutual fund or index fund instead of an annuity. Would you have to lock up your money for 7 to 10 years then? Of course not! You’d be able to liquidate that money at any time at its current market value, without paying onerous surrender penalties. Locking up your money in an annuity is for the agents benefit, not yours.

Now that you understand that agents want you to lock up your money because it impacts their paycheck, let’s look at the other side of the “why not lock it up” argument. You say that you aren’t going to use the money anyway, buy how can you be sure? How do you know you won’t need that money?

Let me give a real life example. I have a client whose mother had a large portion of her portfolio invested in an equity indexed annuity. She wasn’t going to use that money anyway, she thought, so why not lock it up and at least get a small, but guaranteed return?

Unfortunately, soon after, she developed Alzheimer’s and she had to move to an assisted living facility. Her annuity had a nursing home clause, which meant money could be withdrawn to cover nursing home care without incurring a surrender penalty. But she wasn’t sick enough for a nursing home. So now, either her kids will have to pay $10,000 a month to cover her care, or she will have to pay steep penalties to get her own money. Either way, the family loses, not the agent.

There are many other situations that might cause you to tap that money. Some are negative, such as the death of a spouse, long term illness or needing to help a child going through a crisis. Some are positive. Maybe you decide you want to move to a warmer climate or help a grandchild pay for college. Whatever the reason, you can’t predict the future and it’s foolish to paint yourself into a corner financially when you don’t have to.

Many investors say they can’t foresee a situation in which they might want to change their investment. But wanting to change your investment is even more likely to happen than a sudden illness. Interest rates can take a downward or upward trend. The market can tank or take off. Your income needs might increase beyond what you’re currently earning. If your funds are locked up where you can’t touch them, you won’t be able to respond to these situations and opportunities. It’s like locking an airplane on auto-pilot, so you can’t navigate around a thunderstorm or take advantage of tailwinds.

Don’t fall for the “why not lock it up” argument. Remember, agents are asking you to give up your flexibility so they can earn a big commission. It just isn’t a fair trade. I am always happy to answer an investor’s questions about investments or annuities, so don’t hesitate to call. I will be happy to help you in any way I can.

Nationally-syndicated financial columnist and Certified Financial Planner® Jeffrey Voudrie provides personal, in-depth money management services and advice to select private clients throughout the USA. He’ll answer your financial question – FREE at http://www.guardingyourwealth.com