If you’re planning to withdraw money from your annuity, it’s important to first understand your options. The process can include working with your insurance company to determine how much you want to withdraw as well as paying penalty fees if you withdraw before the surrender period has passed. Knowing what options you have when withdrawing from your annuity can ensure you make the most educated decision and save the most money during this process. Here we discuss three reasons someone would withdraw money from their annuity and the options available.
1. Unexpected Needs
One reason why someone may choose to withdraw money from their annuity is because of unexpected life circumstances such as an emergency or sudden financial needs. For example, you may have gotten into a car accident and need to purchase another car before your insurance can provide funds. Or, maybe you had a baby, and the hospital bills ended up being much more significant than you originally anticipated. Life happens, and sometimes withdrawing from your annuity is the only option to keep you out of debt.
In these circumstances, choosing a partial withdrawal is often best. A partial annuity withdrawal is when you only withdraw a portion of your annuity rather than the entire sum. For example, your annuity may let you withdraw as much as 10% of the last year’s value without making you pay a penalty. This can save you money on surrender penalties and other fees and gives you access to a portion of your annuity to help your situation.
2. A Major Emergency or Hardship
People who have experienced a significant medical emergency or hardship may be able to withdraw from their annuity without having to pay penalties. For example, if you got into an accident and are facing emergency room bills, your annuity contract may have in place a waiver that prevents you from needing to pay surrender penalties for withdrawing some or all of your annuity. This allows you access to your funds without having to wait until you retire.
3. Other Reasons for Annuity Withdrawal
Sometimes individuals need money from their annuities for reasons other than unexpected or major emergencies or hardships. For example, maybe you want to move to another country and need funds to support your move and keep your on your feet while you get established in your location. In these instances, you’ll like need to surrender your annuity contract in order to receive your funds. If your annuity contract is less than 10 years old, you may have to pay a surrender fee that’s as much as 25 percent of your annuity. If your annuity is older than 10 years, you may not be required to pay a surrender charge at all. It’s important to keep in mind that if you’ve had your annuity for a while, you’ll likely be required to pay taxes and a potential 10 percent tax penalty.
No matter what your reasoning is for wanting to withdraw from your annuity, it’s important to be as informed as possible before making this decision. Take time to review each withdrawal option and speak with a financial advisor if you’re unsure which option is right for you.
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