At our independent agency, we work with all types of annuity policies. One of the primary concerns our clients have is access to their policies. They want to know they can make withdrawals when needed.
The good news: There are several ways policyholders can withdraw money from their annuities. Most contracts have several liquidity provisions providing access to income and principal. Withdrawals can be taken regularly or as needed. We discuss all of the options below.
Annuity Interest Withdrawals For Income
Most annuities allow the owner/annuitant to take regular interest withdrawals. They are fantastic products for regular passive income payments during retirement. Owners can choose from monthly interest payments, quarterly, semi-annual or annual disbursements.
We see many of our clients use fixed annuity accounts for regular income – and indexed policies for annual withdrawals. The point is you have a lot of flexibility in when and how you take payments. And if your need for income decreases, you can stop your interest payments and defer them to a later date.
Annual Liquidity Of 3%-20% Of Your Principal
Most annuity contracts offer an annual free withdrawal of between 5%-20% of the accumulated value. This gives you access to interest and principal during the year and at arbitrary times.
The most common amount is a free 10% annual withdrawal feature. However, some will stack your withdrawals if you did not use it for one year. In other words, you could have a 20% withdrawal available after two years.
The requirement for some contracts is that you wait one year before making a 10% withdrawal. But if you find yourself needing more for a small emergency, an annual annuity withdrawal amount is a nice feature to access your principal.
Annuitization – Principal & Interest Disbursements
Another option many policy owners use for regular annuity payments is called an annuitization. Annuities can be annuitized in several ways in order to create a regular stream of income.
Once annuitized, your policy is guaranteed to provide payments for a set numbers of years – or even a lifetime. If you pass away prematurely, your unused principal does not belong to the insurance company. Leftover funds can go to your named beneficiaries.
In some cases, an annuitization can start right away. With others, it would begin after a few years of deferral. Most of our clients choose not to annuitize their policies unless they’re wanting guaranteed principal and interest payments. It’s really up to you.
Withdrawal for Chronic Illness & Health Issues
One of the biggest concerns for investors is paying for future income expenses. Fortunately annuities can help. Almost all contracts have chronic illness, hospitalization, and/or confinement riders available at no cost.
These provisions will waive surrender penalties on some – or all of the contract value – if one of the owners is diagnosed with a chronic illness. But many policies go beyond that.
There are several indexed annuities with income riders that will double your income if you need long term care. Some will double your payments for a nursing home and others for a home healthcare stay. This a smart, no-cost way to increase your income for LTC expenses.
Another possibility is to buy a tax-qualified long term care annuity. These policies require medical underwriting, so some applicants will not qualify due to poor health. Those that do qualify will benefit from their initial investment being tripled in the event long term care is needed. These hybrid long term care annuities are popular and allow owners to account for different scenarios during retirement.
Term Expiration – Non-Renewal Of Contract
No rule says you have to renew your annuity contract once the term is up. Most of our clients purchase short-term annuities with 2-5 year terms.
After the term is up, you may be able to keep your contract surrender-free and allow it to continue to earn interest at a one-year declared rate. With interest rates up (and more annuity competition) many of these accounts renew at very competitive levels.
Once your contract is out of its surrender period, you can withdraw all of your funds at anytime – no questions asked. As you grow older in retirement, it may be a wise way to assure liquidity as opposed to choosing the highest rates with policies that may offer less liquidity.
No Surrender Penalties At Passing
A common question about annuities is what happens upon passing. With the vast majority of policies sold today, your beneficiaries would receive the lump-sum annuity value at passing surrender free. In other words, all surrender penalties are waived at passing.
It should be noted that this is not the case with every annuity. Some contracts will provide higher rates if you remove the death benefit feature. Some of our younger clients who add their spouse as a joint owner/annuitant are comfortable waiving this rider to lock-in higher rates and larger income payments. Again, it’s up to you.
Selling Your Annuity Payments
One final option is to sell your annuity (or annuity payments) for a lump sum cash settlement. We are not proponents of this strategy. It’s a last resort option, but we see some owners sell their structured settlements for cash to make ends meet. We are not buyers of such contracts, but there is a market for them.
Contact Us For More Information
Do you still have questions about annuity liquidity? Do you want to know if you can take money from your contract? Contact us today to learn about your best options.
We offer the highest annuity rates with the easiest access to your interest and principal. We are an independent brokerage and will help you compare the most suitable investment options for your situation.