Can I Withdraw Money from My Immediate Annuity?
People buy immediate annuities for guaranteed, lifetime income. But what if you need access to your money — can you withdraw cash from your annuity?
While the answer used to be “no”, many insurers now offer limited liquidity features. These options can help you in a pinch, but they come with serious trade-offs. In this article, we’ll explain how these features work and what to watch out for.
Can I Tap Into My Immediate Annuity for Cash?
Immediate annuities are often considered to be illiquid, and for good reason: most contracts do not allow you to take cash out of your immediate annuity.
That said, there are some provisions that give your immediate annuity some liquidity:
- Payment Advances — Some insurers allow you to receive future payments in advance, but you miss those future payments.
- Discretionary Withdrawals — This option lets you take a cash withdrawal, but the amount is heavily discounted and your future payments are significantly reduced
Payment Advances
Some insurers allow you to take payment advances, allowing you to advance your next few annuity payments as a single lump sum.
While this might help you out in an emergency, you will miss the future annuity payments that were advanced to you.
Discretionary Withdrawals that Revise Down Future Payments
Some annuity contracts allow discretionary withdrawals, letting you take a lump sum from your annuity. However, the amount you withdraw is heavily discounted, and your future annuity payments are reduced based on the withdrawal.
When you take a discretionary withdrawal, insurers typically apply surrender charges to the amount withdrawn and revise your future payments downward.
Key points to keep in mind:
- Availability — Only select insurers offer this option, and it may only be limited to payout options with a remaining minimum guarantee (e.g., cash refund or period certain)
- Penalties — Withdrawal amounts are discounted due to surrender charges.
- Reduced Future Income — Your future annuity payments will be revised downward, either for the remaining guarantee period or duration of the annuity, resulting in lower monthly income.
- Contract Surrender — Taking the full withdrawal available may surrender your annuity contract, ending all future guaranteed income.
Should You Depend on Your Immediate Annuity for Liquidity?
Just bought my first SMA and was very happy to have gone through Immediate Annuities.com. I found them in an article in the Wall Street Journal. As a first time buyer, I had a lot of questions. But to their credit, they did a great job answering my questions directly or getting the right answers from the right people when they needed to.
The answer to this is a resounding, no. Using the liquidity feature of an immediate annuity is generally very costly and requires formal paperwork — so don’t expect a quick withdrawal.
It is far better to set aside other money for emergency expenses and discretionary withdrawals. That being said, it can still be reassuring to know that your annuity has some liquidity options.
If you need help understanding the liquidity features available in different immediate annuities, contact our U.S.-based annuity experts at (866) 866-1999. We’ll answer your questions honestly, without any sales pressure, to help ensure the annuity you choose is the right fit for your needs.
References:
- Palladium Immediate Annuity Product Brochure, American National.
- RetireEase Immediate Annuity Product Brochure, Mass Mutual.
- Income Promise Select Immediate Annuity Product Brochure Nationwide.
We'd love to hear from you!
Please post your comment or question. It's completely safe – we never publish your email address.
Comments (4)
Kyle
2022-09-26 10:56:22
Hello Angela,
We would have to recommend that you reach out to Mass Mutual directly to determine whether your husband's policy offers a liquidity (or cash out) feature.
Best regards,
Kyle
Angela R.
2022-09-24 14:00:44
My husband has a Retire Ease Annuity and I would like to know if he can take cash out?
Thank you
Hersh
2014-12-09 15:47:57
Hi Connie--
First, before I answer your question I want to strongly urge you to meet with a financial planner to determine whether or not borrowing from your annuity is a suitable decision in your situation. You should discuss with her or him whether your current financial stress is just a temporary problem or whether it's likely to be a long-term problem. There are many other considerations you need to look at. For example, when will you be able to repay the loan (if you can get one)? Are there adverse tax consequences if you borrow against an annuity for which you didn't pay the premium (you got it as part of your divorce)? These are just a few of the questions that you should review with your planner or accountant.
Regarding your question about getting cash now for your annuity, I believe your options will depend on the kind of annuity you have and what type of payment plan it guarantees.
1. Deferred Annuity
If you own an annuity that has a cash surrender value, meaning, the insurance company will pay out a lump sum on request, then you might be able to request that value today or borrow against it. I suggest you contact the insurance company and find out if there is a cash value. If there is then the next step would be to contact a branch manager at a local bank and ask them your questions. They should be able to tell you whether they'll accept your annuity as collateral.
2. Immediate Annuity
If your annuity does NOT have a cash value, in other words, it's the kind of annuity that is already paying out a monthly income, it's unlikely a bank will accept it as collateral. If you eventually defaulted on your loan the bank would have a tough time getting any cash from the annuity it held.
However, there are factoring companies that may give you a lump sum today in exchange for your transferring the rights to any future income payments to them. Google the phrase "sell my annuity" and call some of the companies listed in your search results. Don't be surprised if you're only offered 40 to 50 cents on the dollar. These companies typically pay a deeply discounted amount for future income.
Good luck and let me know how this is going for you.
Hersh
Connie B.
2014-12-09 15:45:21
I was divorced on nov14 this year. I was awarded 46,000 of the annuity that we can have access to now, however I am in a very rough financial spot.. no vehicle, home or job... can I use my decree with judges signature awarding me the annuity to loan enough to get on my feet and if so what would fees be for doing so?