Annuities are designed to provide lifetime income for the investor, so at some point you’re going to knock on the door of your fund to remove your cash. Annuities are complex investment options with a myriad of ways to get your cash. Because of some guarantee provisions and pension-like options available in annuities, you’ll want to study your contract carefully before ripping funds from your account. The way you had originally intended to take cash out may not be the optimal method.
Read your contract to find annuitization options. These options allow you to receive a stream of income for as long as you live. Some options include the ability to guarantee a set-timed payout, whether you live or not. For example, an annuity with a 20-year period certain will may payments for at least 20 years. If you outlive 20 years, the annuity will continue to pay until you die. Compare many annuitization options when deciding how best to turn your annuity into cash.
Review the annuity contract for income-guarantees. Some annuities guarantee that your account will never run out of funds as long as you limit your cash withdrawals to a certain percentage of the contract. Often, these are called guaranteed minimum income benefits. Although these may hinder your ability to take all of your cash at once, limiting your withdrawals to the amount allowed by these riders could provide you much more income over your lifetime than an immediate cash-out would provide.
Scour your annuity contract for withdrawal fees. Some annuities have surrender charges for the life of the contract, however, a typical surrender charge is around seven percent in the first year and lowers by one percent each year until it’s eliminated. If you have outstanding surrender charges, it may make sense to wait, if possible, until they expire before turning your annuity into cash.
Contact your annuity company and tell them the manner you wish to take out funds. The annuity company representative will help determine which forms you’ll need to complete to turn your annuity into cash.
Verify the information you read in your contract with the annuity representative. Often, these contracts are complex instruments, so review your withdrawal option with the representative so that you don’t miss any fees or better methods to withdraw cash. He may recommend an option that you hadn’t thought of which better meets your cash needs.
As a former financial advisor to companies and individuals for 16 years, Joe Andrews knows financial planning and marketing from start-ups to personal budgets. He also writes on motor racing, board games and travel. Andrews received his B.A. from Michigan State University in English. He is currently working on a young adult novel.