Dear Mr. Berko:

Your answer last month to C.C. in Vancouver, Wash., about taking $9,000 from his annuity for income confuses me. His adviser said that if he took more than 6 percent of his initial $112,000 investment, or $6,720, his annuity value would be reduced by the difference between the $9,000 he would take and the $6,720 he was allowed to take, or $2,820. One broker tells me the 6 percent amount should be based on the stock market value of the mutual funds. Another insists that the 6 percent should be taken from the original investment as you stated. And my property and casualty agent says it should be 10 percent of the initial investment. Then I called Ohio National (my annuity company) and had trouble understanding what was patiently explained to me. Who is correct?

H.G., Cleveland



Dear H.G.:

None of us.

Equitable, founded before the Civil War, was unquestionably among the most revered American corporations until it was taken over by AXA Group, a large French insurance conglomerate, in 1991. And last month, I told the owner of an AXA Equitable variable annuity that the maximum he could take from his variable annuity (VA) without depleting principal was 6 percent of his original $112,000 investment, or $6,720. That was also the amount given to him by his broker.

Because 6 percent of the original investment was what I was sure I’d been told and what I believed I had read, I knew I was right. But not long afterward, I received a call from Discretion Winter, who handles delicate, sensitive and unusual tasks for AXA Equitable. She told me I was wrong. And she was right! But she corrected me in such a beguiling, charming, disarming manner that I was pleased to hear from her. So the Gospel according to Ms. Winter, who speaks with the knowledge and authority of AXA Equitable, is as follows: The VA owner can withdraw up to $10,800 every year, or 6 percent of his “benefit base” of $168,000 (of course, everyone knows what that is), without incurring an “excess withdrawal” penalty. The benefit base is calculated as the original investment of $112,000 plus the annual 6 percent guaranteed compounded interest rate over the number of years the policy is in force. And the $4,080 difference between $10,800 and $6,720 is considerable for C.C.

Investors are discovering that their contracts have more moving parts than a sack of Swiss watches. And the single-spaced small print with impossibly long, wordy run-on sentences of stale legalese and confusing insurance lingo makes as much sense to most civilians as a toxicology report of a deceased cancer victim. I’m convinced the serpentine complexity of these contracts is inversely related to the enthusiasm and avarice of their salespeople. Meanwhile, VA annual reports, twice the size of your Cleveland telephone directory, weighing about 4 pounds, are equally puffed with fancy words and mind-bending columns of dizzying numbers and calculations. Millions of reports are mailed to policyholders every year, and millions are never read. And watching the physical production of these reports is as fascinating as watching the annual salmon run below Oregon’s Savage Rapids Dam.

There are some darn good VAs but plenty of bad ones, too. Most salespeople are reluctant to disclose the 5 to 14 percent commission costs because it might queer the sale. VAs have annual fees of 3 percent or higher (mortality, management costs and other expenses), causing unattractive short-term performance. So salespeople are reluctant to disclose this fee, too, because it might nix the sale. And when an impatient or disappointed investor cancels his contract early (must be held for 10 years), he’s shocked to discover penalties exceeding 10 percent, which most salespeople are reluctant to disclose because it might foil the sale. If you purchase a VA, plan on keeping it for at least 15 years. And if you select a VA with a superior annuitization rate, it can be an impressive complement to your retirement income. Few investors know enough to ask about annuitization income, which can vary immensely among competing insurers.