How Do I Cash Out an Annuity?

by Joy Uyeno, Demand Media
    You must decide whether the loss is worth the payout of cashing out your annuity.

    You must decide whether the loss is worth the payout of cashing out your annuity.

    In times of financial hardship, you may consider cashing out your annuity, but before you do it's vital to understand what kind of loss you'll take on your investment. Carefully review quotes from reputable annuity settlement firms, and ask about taxes and fees that you will be charged for cashing out. You should also inquire about the length of time the cash out process will take -- it ranges from a few days to several months depending on each individual circumstance.

    Step 1

    Research companies that specialize in annuity services. Shop around to find the most reputable firm, keeping in mind that you're selecting a service that is in charge of working with thousands of your dollars. The financial advice website Banking My Way points out that it's easy for these companies to skew the numbers in their own favor, so it's a good idea to read reviews of companies before signing on with one.

    Step 2

    Get a quote for the lump sum that you will receive upon cashing out your annuity. If the quote is far less than you invested, you may want to consider other sources if possible. For example, if you invested $200,000 but you'll only receive $50,000 upon cashing out your annuity, the loss may not be worth the immediate payout. You will have to pay taxes when cashing out your annuity, so ask about those fees when working on a quote with your broker.

    Step 3

    Let your broker know when you're ready to go through with cashing out your annuity based on the best possible quote. Fill out the paperwork, which will ask for personal information and the information on the account you want the funds deposited to. If your financial situation and annuity are complex, the process may take place over the course of several months. Simpler cases may only take a few days.

    Tip

    • Withdrawal or income guarantees with variable annuities may allow you to make withdrawals up to six percent no matter how poorly your investments are doing without hurting your principal. This option is something to consider instead of taking a hit by fully cashing out your annuity.

    Warning

    • If you cash out within the first seven years of your annuity, you will be subject to a surrender charge. The charge is seven percent in the first year, less one percent each year thereafter.

    About the Author

    Joy Uyeno has been writing about travel, food, fashion, culture and finance since 2005. For three years she wrote a column for the "Honolulu Star-Bulletin" aimed at young and first-time travelers. Her writing has appeared in several local and national publications, including the 2008 anthology "Honolulu Stories." She holds a Master of Arts in writing and publishing from Emerson College.

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