Hope In Hell On Earth: Micro-Finance In Nicaragua

This is not a sermon or a sales pitch, but a story about a place as inspiring as it is disturbing, where greed has raped a people of their material resources and dignity but where brilliantly applied generosity has created hope and enterprise of which Fortune 500 companies would be envious.

For months I had prepared myself for this moment, stepping off of the run down school bus in the middle of La Chureca, the dump of Nicaragua’s capital city, Managua.  Listed among the Seven Horrendous Wonders of the World, Chureca is not just a collection of refuse, but also a refuge for over 300 families.[i]  Men, women and children compete with mangy dogs for sustenance and sex traffickers for their minds, bodies and souls.

I knew it was coming from the moment I accepted the invitation to join a contingent of teachers, health and finance professionals orchestrated by GraceCity, a young church in downtown Baltimore enamored with serving the poorest-of-the-poor in its home town and, interestingly, the Managua city dump.  But nothing could prepare me for the sights: homes manufactured of rubbish; smoke lifting from piles of debris; a multi-colored landscape of mountainous trash dotted with laborers scrounging for something of worth under a 98 degree sun; a makeshift school[ii] lined with barbed wire; and scores of children, many without shoes or a single article of clean clothing but with stunning smiles lighting up their dirty faces.  After all, they were thrilled to see us—we were there with the ORPHANetwork, a Virginia-based NGO devoted to serving malnourished and displaced children in Nicaragua.  We were at one of their many feeding centers in the country, designed to provide at least one nutritious meal per day to over 10,000 starving children.

You hear of such things on the news and see pictures of such children on commercials filled with brown faces asking for money on late-night television, but it’s hard to believe it’s true—that I was fortunate enough to be born in a geographic location with a host of inherent benefits while these kids were born into the closest thing imaginable to hell on Earth.  When I gaze into my children’s eyes, I see in them a vast universe of unencumbered curiosity and possibility, but in La Chureca, I was forced to look into the eyes of girls as young as six who have already been sold into prostitution.

It was as if I was in one of those movies when a scene strikes a subject so hard that all he can do is marvel in slow motion, unable to process the myriad of overwhelming stimuli.  But as my worldview crumbled and my eyes welled up, I was forced to turn my gape downward.  A young boy was tugging on my shorts. Once our eyes met, he throttled his hands upward in the universal sign for “Pick me up,” and before I could confirm that I’d been vaccinated for all that he was visibly carrying, he’d swung himself around to my back, stripped my sunglasses and made them his own, smacked my side and yelled “Vamos!”  Just a kid.  Any kid.  Born in a garbage dump.

As I impersonated a horse for my newfound friend for the next 15 minutes, life began to return to normal speed.  I could hear clearly, but I couldn’t understand.  I had expected the smell of aging trash from opening my own garbage can, but the more pervasive scent in La Chureca was that of garbage burning.  My brain began to re-engage, and I couldn’t but begin to process the questions How? and Why?

Nicaragua is the second poorest country in the Western Hemisphere, only behind battered Haiti.  The per capita income is $3,200[iii].  Per year.  While the official unemployment rate was just 7.03% for 2011, the underemployment rate is nearly 50%.  Indeed, “minimum wage” amounts to about $90 per month.  29% of kids make it past the sixth grade, only 10% graduate from high school.

When I peppered our American guide with questions intent on discerning the “why” behind Nicaragua’s systemic extreme poverty, he gave me three reasons: 1) a history since colonial times tainted by corrupt leadership, 2) outside meddling and 3) persistent natural disasters.

Indeed, with Nicaragua’s exposure to the Pacific on its western coast and the Caribbean on its eastern, hurricanes and a particularly rainy, rainy season have wreaked havoc on everything from homes to infrastructure to crops.  Additionally, “the country of Lakes and Volcanoes,” with 19 total volcanoes and eight active, is also prone to earthquakes.  A quake in 1972 leveled much of the capital city of Managua, forever changing its face.  But the other two reasons for extreme poverty in Nicaragua point to corruption and meddling driven primarily by greed.

The chief meddler would have to be the U.S.  Of course we had that little issue of the Iran-Contra Affair, but long before it, the U.S. asserted its will in Nicaragua with boots on the ground from 1909 until 1933, when we could no longer afford to intervene mired in our own Great Depression.  Why were we there in the first place?  To stop the Nicaraguans from completing a canal to compete with our own in Panama.  But along the way, we managed to foment enough nationalist dissent to create an environment ripe for the rise of Augusto César Sandino, the first Sandinista.  Yes, we helped create the problem we were unable to correct covertly in the 80s.

And while the Sandinistas are in control again today, political power struggles of the last 100 years are still visibly evident.  Whether in the capital city, small towns or the countryside, a drive through Nicaragua becomes a blur of competing political colors, flags, slogans and faces vying for one’s attention, or better yet, one’s vote.  Not a single road marker, guard rail or bus shelter is unaffiliated.

Reflecting on the country’s endemic poverty and tradition of dysfunction, handing out bowls of nutrition-charged rice to the starving children of the dump, I wondered how exactly there was any hope to be found.  I remembered something I read about “hell on Earth.”  I’m no theologian, but apparently in the recorded instances of Jesus discussing hell in the Bible, he used the word “gehenna” to offer his followers a visual.  Gehenna was the garbage dump outside ancient Jerusalem.  A burning heap of trash.  The people of La Chureca live there.  In hell on Earth.

But there is hope, and I soon learned why.

You see, I wasn’t invited to Nicaragua as an expert in matters spiritual or nutritional.  I was there to hopefully learn enough about the country and culture to provide any insight I might muster to a fledgling micro-finance operation (Neo) embedded in a small church (El Faro) whose stated purpose is to serve the people of the dump.  Inspired by Muhammed Yunus’ Nobel Prize-winning work with the Grameen Bank in India and supported by a few U.S. churches, Neo’s goal is to nourish the bodies, minds and spirits of the Churecans by giving them vocational vision—a life purpose—and an economic infusion designed to fuel that vision.

It’s hard work to convince a father who prostitutes his 10-year old daughter to truck drivers to feed their family that there is a better way.  It’s hard work to explain that a small loan isn’t to be used for short-term emergency subsistence, but instead to buy beads then crafted into a jewelry inventory.  It’s hard work to instill an entrepreneurial vision in someone with HIV/AIDS whose self-worth is nonexistent, at best. It’s hard work to instill confidence and worth in children born in the dump, 90% of whom report suffering some form of abuse.  It’s hard work that requires at least a generational commitment on the part of a diverse team of co-laborers.

Fortunately, such a team exists.  Most of the team members are Nicaraguans applying daily effort toward the end of eliminating the abject dehumanization of their countrymen and women.  Some of us Americans are privileged to work beside them in this glorious endeavor.  We learn more than we teach, we are inspired more than we inspire, and we receive more than we give, ever mindful that many well-intended Americans sadly do more harm than good in similar initiatives.[iv]

The best-dressed member of this team is none other than Under Armour.  The Baltimore-based clothing company—famous for celebrity endorsements and making those who adorn their sportswear look much cooler than we really are—already has an international presence, but they’re also in the dump.  After Under Armour’s Senior Creative Director for Men’s Apparel, Nick Cienski, had an experience similar to mine walking off the bus in La Chureca, his wheels started turning. As of today, they’ve already donated several industrial sewing machines, fabric, patterns, some seed-money and training that is breathing vocational life into single moms from the dump, helping break the cycle of prostitution.

My head was spinning just trying to figure out how all these different players had come together.  Under Armour makes a donation to begin a sewing business that works in conjunction with the micro-finance initiative run by the church in Nicaragua in partnership with the ORPHANetwork supported by GraceCity, whose collective mission is to serve a community living in the biggest dump in the poorest country in the Americas.  Wow.  I didn’t see that coming.

But my economic adventures in Nicaragua reached even more inspiring heights, and altitudes.  Two gringos—former Erickson Retirement Communities CEO, Rick Grindrod, and I—headed into the beautiful Nicaraguan mountains with Mario Pérez, Executive Director of PAC (Pueblos en Acción Comunitaria or People in Community Action).  As his son (also Mario) drove us over winding roads through nestled mountainside towns, the former economist with the Nicaraguan government told us a story that was to culminate as we reached our destination.

Over 15 years ago, the international aid organization, World Relief (coincidentally also headquartered in Baltimore), planted one of its own, Kevin Sanderson, in Nicaragua to lead an operation designed to help rural coffee farmers rebuild their lives and businesses after having left them behind for a 10-year civil war.  With a background in both agriculture and finance, Kevin was ideally suited for the task and made Nicaragua not only his project, but also his home, marrying a Nicaraguan and starting a family there.

Often deemed an MFI (micro-finance institution), PAC is really so much more.  It’s a holistic “value-chain” operation.  Soup-to-nuts.  First, they scour for coffee farmers with entrepreneurial blood.  They give that entrepreneur the freedom and responsibility to build his own team of farmers and plantation workers.  Then, often contradicting over 100 years of tradition, they train them in environmentally sensitive, sustainable farming techniques.  They provide the financing for a cash-intensive harvest and streamlined processing, even connecting the farmers to roasters.  Every PAC coffee farmer now meets Fair Trade Certified standards, allowing their product to be sold at a premium and quite possibly end up in the bottom of your cup of specialty coffee.

After about seven years (and in keeping with their core beliefs), World Relief turned over the reins of the operation to the Nicaraguans, now led by Mario, who led Rick and me 3,000 feet in elevation to the home and business of Claudio Martinez.  Claudio, one of PAC’s anointed entrepreneurs, was waiting for us on his porch with several of his farmers.  Telling us their stories through a translator, Rick and I sat aghast as one farmer after another told us how this economic initiative had not only transformed their vocation, but redeemed their whole lives, providing their families and entire villages with the chance for a new life.

PAC’s innovation has now extended well beyond Central America’s most famous crop.  They have also trained farmers to diversify their yields with cocoa and vegetables—and not just any vegetables.  We traversed a recently developed farm that yields multiple specialized crops that aren’t indigenous to or even consumed in Nicaragua (or the U.S.), but are much loved in the world’s two most populous nations, China and India.

It may have been at that very moment—several days into the trip and 10 hours into the PAC expedition—that I finally understood paternalism and began to recognize my own.  I had been warned of the difficulty we have rendering aid in developing regions as Americans.  Almost immune to our own affluence, we tend to presume the superiority of our balance sheets and income statements equates to at least a higher work ethic if not (although we wouldn’t voice it) superior ingenuity or even intelligence.

It’s almost as if we assume our ideas for improved healthcare, education, business and waste management are better because we have a 401k and can record our television shows to watch at our convenience with a DVR from our iPhones.  But standing in the middle of that Asian vegetable field in Nicaragua, I was forced to acknowledge that everyone I interacted with that day worked harder and longer, and employed a greater level of creativity, ingenuity and productivity, than just about anything I’ve seen in the States.

I am not their helper.  I can only be their partner, and may be lucky to make the cut.

After completing our 13-hour tour of coffee plantations, vegetable fields and cocoa processing plants with the Marios, all the while hearing stories about how they’ve overcome everything from illness, weather and crop failure to social movements designed to weaken their businesses, Rick and I were about one cup of Nicaraguan Joe from applying for citizenship.  Thankfully, our journey there is just beginning.

This is not just another emotional story intended to tug at your heart strings enough to get you to open your check book and help these organizations, although to that I am not opposed.  This story is for you.  While every word is true, it also stands as a metaphor for the influence of money in our lives, regardless of our geography.  The same issues that create systemic failure and success with money on a global scale also impact us personally.

Were I to simply declare that the pursuit of money for its own sake—greed—leads to nothing short of death while money employed as the currency of relationship brings life abundant, you might accuse me of over-dramatizing.  This is because in our country and your neighborhood this is not so pervasively and visually evident.  But death visits those in La Chureca and other pockets of hell on Earth daily, even for the living, and the primary source of this pain is financially rooted.  Meanwhile, tangible assets shared in partnership by caring individuals, associations, organizations and companies are often the very vehicle of hope that transforms lives for the better, materially, physically, emotionally and spiritually.


[i] This number is actually down quite substantially thanks to an infusion of cash from the Spanish government, fueling a plan to transform the dump into a landfill and displace the residents of La Chureca.  Unfortunately, this has actually increased the desperation of the remaining residents as their source of sustenance has dwindled in size.  Additionally, most of the major cities in Nicaragua have a similar dump with a similar population.

[ii] El Colegio de la Esperanza (the School of Hope)

[iv] The book When Helping Hurts opened my eyes to this and offers many helpful suggestions to ensure your charitable trips and efforts do more good than harm.

The Action Plan App

This is the 16th and final exercise in a series designed to walk you through an entire financial plan.  The exercise is embedded in an Excel spreadsheet you can download and save for personal use.  You can read the backdrop for the exercise HERE, or just jump right in with the instructions given below:

The Action Plan is broken down categorically into the various sections of our comprehensive financial plan blog series.  As you organize each of the Apps you’ve completed, you’ll be able to carry the actions you’d like to take over to the Action Plan.  Each section will give you an opportunity to describe the fundamental change you want to improve your life as well as the practical change steps that you intend to take.  Beside each action in each section, you’ll be able to name a responsible party to complete the action.  It may be you or your spouse, or it may be an action that an estate planning attorney or financial planner will help you complete.

Then, you’ll have a column in which you’ll be able to prioritize all of these actions. Even if you have the money to implement everything at once, you definitely don’t have the time.  If you don’t prioritize, you may become overwhelmed with the task at hand and give up.  Finally, you’ll have a column to write in a date when it’s completed.  Give yourself the chance to feel that endorphin rush of checking off a to-do.  You deserve it!

Click HERE for the Action Plan app! And of course, you can also read more on the topic in the book Jim and I co-authored, The Ultimate Financial Plan, in Chapter 16, “The Gift of Action: Your Plan For Money And Life.”

Everything Counts

by Jim Stovall

I’m a firm believer in the concept that we never do anything, good or bad, that we don’t get paid for.  Some of the good things you may do may not be immediately or obviously rewarded, but I believe they will be; and if someone does something bad, it may seem—in the short term—that they’re getting away with it, but consequences are a universal law.

Everything we do matters in the grand scheme of things.  There are some things that seem more critical than others, but if we will step back and examine it, we will realize that the crisis comes from our performance not external factors.

Recently, I enjoyed the NBA playoffs.  It seems like basketball, more than any other sport, often comes down to what sports announcers or fans would call a last-second critical shot.  In reality, if a team needs a last-second basket to win the game, that single basket counts no more or less than if they had made it immediately after the opening tipoff at the beginning of the game.  In fact, often the last-second basket seems critical because a team may have played poorly at some point in the first half, and the crisis comes to the surface at the last second.

Last college football season, fans watched in frustration and anguish as a young man from Stanford University missed a critical field goal.  Obviously, you would expect a kicker at the major college level to routinely make that field goal; however, if the team had simply gotten another first down in the second quarter or if a receiver had not dropped a pass on the opening drive of the game, Stanford might never have needed that field goal in the last second of the game.

Many crises we face in our personal and professional lives are self-induced.  We put ourselves in a financial or time constraint and then need some last second heroics to emerge unscathed.  Success in life is not about seeing how close we can get to the edge without going over the cliff.  While there are last-second emergencies and crunch times in everyone’s life, the majority of stress and frantic last-minute efforts could be avoided by prior planning.

Too many people who face last-minute financial or deadline emergencies based their planning on a best-case scenario.  If you don’t plan for the inevitable delay, flat tire, or budget overrun, you will live your whole life facing the frantic last-second shot to stay in the game.

As you go through your day today, plan to win in every area of your life beginning with the first play of the game, not just the last one.

Today’s the day!

Finding A Financial Advisor App

This is the 15th exercise in a series designed to walk you through an entire financial plan.  The exercise is embedded in an Excel spreadsheet you can download and save for personal use.  You can read the backdrop for the exercise HERE, or just jump right in with the instructions given below:

Fiduciary Questionnaire

The compensation methodology and regulatory oversight of your financial advisor are not the only thing to consider when choosing an advisor, but they are a very important part of the picture.

You can also navigate directly to the following website to find a downloadable, printable questionnaire you can use to ask your advisor or a prospective advisor to complete for you.  At the end of the questionnaire is a Fiduciary Oath you should ask your current or prospective financial advisor to sign, showing their willingness to put your interests ahead of their own, or those of their company.

Navigate to the Fiduciary Questionnaire by clicking HERE.

And of course, you can also read more on the topic in the book Jim and I co-authored, The Ultimate Financial Plan, in Chapter 15, “The Gift of Discretion: Choosing a Financial Advisor.”

Estate/Legacy App

This is the 14th exercise in a series designed to walk you through an entire financial plan.  The exercise is embedded in an Excel spreadsheet you can download and save for personal use.  You can read the backdrop for the exercise HERE, or just jump right in with the instructions given below:

You’re creating a legacy whether you want to or not, and purposing yourself to make that a story filled with meaning isn’t a box to be checked off, but a different way of living.  And while your estate and your estate plan is merely a part of the legacy you’ll leave, it’s certainly an important part, and we’ve developed an app to help you do that.

Begin or revisit your personal estate plan by completing the Legacy Plan exercise.  Included is an estate checklist to ensure you have the necessary documents updated with the appropriate provisions inside of them.  As you work through the process of getting your documents in line with your Personal Principles, develop your survivor guide which should accompany your estate-planning documents to provide additional details of your wishes to those you leave behind.  You’ll find this downloadable booklet app by clicking HERE.

Incidentally, my coauthor, Jim Stovall, has changed the way millions of readers, and Lord knows how many moviegoers, understand the word legacy through his book, and subsequent movie, The Ultimate Gift.  If you haven’t read it yet, I encourage you to do so.  It is a fast, refreshing read that acts as a great launching point for a legacy plan going well beyond the numbers.

For those who are encouraged to take additional steps to ensure they leave a legacy, not just an estate, the themes exhibited in The Ultimate Gift are now available as tools you can find at www.theultimategift.com.

And of course, you can also read more on the topic in the book Jim and I co-authored, The Ultimate Financial Plan.

Gratitude and Gratuity

by Jim Stovall

During the current economic downturn, I realize many businesses and individuals are having a difficult time making ends meet.

Recently, my coauthor Tim Maurer and I released a book dealing with money and personal finance (www.UltimateFinancialPlan.com).  As a result of the publicity and promotion of that book, I have had the opportunity to talk with many groups and individuals about the economy, budgets, and personal finances.  While speaking to a group of people who work in the restaurant and food industry, I was shocked to find out how much economic conditions affect consumers’ tipping practices.

My first life experience in the world of business and commerce involved delivering newspapers.  I quickly discovered if I was reliable, dependable, got the newspaper on the porch or where the customer wanted it, and kept it dry during inclement weather, I could receive some generous tips.  I found that good service often brings a disproportionately higher tip.  This is to say that many times for slightly exceeding expectations, you can receive a tip two or three times larger than you would otherwise expect.

When you and your family or colleagues go out to eat, everyone knows that the standard expectation for tipping is a minimum of 15%.  If you cannot afford to comfortably pay for your meal and minimal tip within the context of your budget, you simply cannot afford to eat out.  Regardless of your personal financial condition or the prevailing economic trends, the person who serves you deserves to be compensated appropriately.

Experts disagree on how you should handle substandard or poor service.  Some feel you should not tip at all or limit your tip while others feel you should discuss your situation with your server or, better yet, management.  I feel if you’re going to withhold a tip, the server should understand why.  Withholding a tip should indicate the service was so poor that if your meal had been deficient to the same extent, you would discuss not paying your bill with the management.

Apparently, many consumers find a number of minor complaints in their own minds sufficient enough to withhold the tip, but they never express their displeasure or the reason for their actions with the server.  Tips are discretionary as are most standard expectations in polite society.  If you withhold a tip without discussing it with your server, it says more critical things about you than the waiter or waitress.

I have a personal problem with establishments that put a standard gratuity on the bill.  I guess there’s nothing wrong with it if it’s disclosed up front, but I simply think the practice defeats the time-honored tradition of tipping.  Invariably if there is a mandatory tip already added to my bill, that is generally all I will pay.

One of my favorite quotes from President Harry Truman says, “We will give millions for charity but not one penny for tribute.”  President Truman was expressing the sentiment that we enjoy being generous but not having things taken from us or required of us by people who feel entitled to what we have.

As you go through your day today, remember the people who serve you, and treat them as you would want to be treated.

Today’s the day!

Fulfillment Plan App

This is the 13th exercise in a series designed to walk you through an entire financial plan.  The exercise is embedded in an Excel spreadsheet you can download and save for personal use.  You can read the backdrop for the exercise HERE, or just jump right in with the instructions given below:

This chapter’s Timely Application has three parts.  The first part is for all readers of any age, and it is an exercise to give you the opportunity to define what the optimal retirement looks like for you.  After defining retirement on your own terms, you’ll conduct some self-analysis placing your own personal tendencies on a continuum ranging from “spendthrift” to “hoarder.”  (It’s always interesting to revisit your Personal Money Story to pinpoint events in life that may have helped create these tendencies.)  After examining your strengths and weaknesses regarding short-, mid-, and long-term planning, you’ll articulate what your Fulfillment Plan would ideally look like.

The second and third parts of this exercise are for readers within striking distance of a transition toward some form of retirement.  The Retirement Income Sources tab will help you determine what your sources of income will be in retirement.  Then, contrast your expected income with a Retirement Budget to complete this chapter’s exercises.

Click HERE to access the Fulfillment Plan app!

The Art of Amazing

by Jim Stovall

Defining success is the initial barrier most people face.  If they instantly had the opportunity to flip a switch and become successful, they haven’t determined what that illusive term “success” means to them.  Success comes in many sizes and shapes.  It is not a one-size-fits-all proposition, but instead success is a custom-made garment designed to serve you throughout your life.

Once you have defined what success means to you, you’ve got to have a plan of action for how to get there.  I have been searching for a number of years to find a simple, one-step process to help people move toward success as they have defined it.  As usually happens, great wisdom comes not in the form of an insightful answer, but instead, it appears as a penetrating question.  Once you have defined what that customized success looks like for you, and you are pursuing it as a part of your daily routine, you simply need to ask the following question as you approach each task.  “What would I do right now if I were amazing?”

This seems to cut through the clutter and clarify the critical issue faster than anything I have ever found.  The question, “What would I do if I were amazing?” doesn’t require us to be amazing or even act like we’re amazing.  It simply assumes we have the ability to act amazing when dealing with the single task before us at any given point in time.

Lifetime goals can be broken down into long-term objectives and short-term activities; but at some point, no matter what our goal, we are faced with the next single task at hand.  It may be as simple as a phone call, a meeting, or a conversation.  It may require us to meet or greet a new person.  But whatever that activity, if we can answer the question, “What would I do right now if I were amazing?” we then stand at the fork in the road and are faced with that inevitable question, “Do I do the least I can do, the minimum that is expected, or will I perform this next task as if I were amazing?”

If you perform enough tasks at that level, soon people will begin to say of you, “That person is amazing,” and they will be right.

As you go through your day today, accept the fact that you won’t always have the right answers, but from now on, you’ve always got the right question.

Today’s the day!

Tax Myths And Rules App

This is the 11th exercise in a series designed to walk you through an entire financial plan.  The exercise is embedded in an Excel spreadsheet you can download and save for personal use.  If you haven’t yet, please read the posts divulging the 5 Tax Myths and the 5 Tax Rules.  If you have, you’re ready to jump into the exercise with the short explanation below:

Tax Myths & Rules

Put your own tax acumen to the test by reviewing each of the Tax Myths and Rules to see how well you’re avoiding and applying them in your life.

With the aid of this spreadsheet, you’ll be able to examine your own posture toward each of the five tax myths and rules.  You can then determine what actions you can take to avoid letting tax implications lead instead of follow in your financial planning.

Click HERE to access the Tax Myths & Rules App!

Annuity Audit App

This is the 10th exercise in a series designed to walk you through an entire financial plan.  The exercise is embedded in an Excel spreadsheet you can download and save for personal use.  You can read the backdrop for the exercise HERE, or just jump right in with the instructions given below:

It is my hope that this is an extremely brief exercise for you, but many people who have long-term relationships with folks in the insurance, brokerage, or banking industries have a lifetime of annuities built up.  If that is your scenario, it is very important that you do this exercise to get a handle on where your money is and what it is doing (or not doing).

When you did your Personal Balance Sheet or Mutual Fund Audit App, you probably pulled together the statements for any annuities you own.  These statements often lack the information you’ll need for this exercise, so I also want you to pull together each of the contracts you received at the inception of your annuity policies as well.  Then, using the App (link below), fill in the information cataloging the following: owner[i], annuitant[ii], beneficiary[iii], contract value, surrender value, cost basis (the sum of your contributions), and the surrender schedule.  Some of this will be on your statement, but the remainder will be in your policy contract. You may have to do some digging.

Once you’ve collected the information, the analysis should start with a diagnosis of the investment value.  If it is a fixed annuity, you’ll know very quickly if the rate is competitive with today’s rates.  If it is a variable annuity, examine how it has performed versus the various benchmark indices.  If it is an equity indexed annuity, the chances are very good that it is not a phenomenal investment, but it also probably has a very long and steep surrender charge which may make it prohibitive to move at this time.

If you determine you’d prefer to be out of an annuity contract, here are the questions to ask:

  • What, if any, surrender charge exists?
  • Is the surrender charge cost prohibitive?
  • How much longer will the surrender charge last?
  • How much have you contributed (what is your cost basis)?
  • How substantial would the tax impact be (would you have to pay a lot in taxes)?
  • Is there a gain on which you would have to pay a penalty if you are under age 59½?

Again, remember to make these decisions slowly because there are many moving pieces with annuities.  It is best to speak with a fee-only Certified Financial Planner™ practitioner AND a Certified Public Accountant prior to making any final decisions.

Click HERE to access the Annuity Audit app!


[i] The person who made the investment in the annuity

[ii] The person upon whose life the actuarial calculations in the annuity policy were based (this is often the same person as the owner)

[iii] The person or people to whom any annuity proceeds will be directed upon the death of the annuitant