Many people purchase annuities as a means of diversifying their retirement portfolios. On the flip side, there are many factors beyond your control when it comes to planning for retirement. Sometimes, emergencies or sudden circumstances may arise wherein you may need cash upfront. As such, some seniors opt to sell their annuity payments for a number of valid reasons.
As a senior, you might ask yourself, “Is selling my annuity worth it?” — especially since this is supposed to give you a steady stream of income during retirement. The answer depends on your particular situation, which a financial planner or lawyer can advise you on. But if the need for immediate finances is apparent, then the pros of selling annuity payments may outweigh the cons.
Before you decide to sell your annuity payments, it is important that you know what your options are. Here are the different paths you can take when annuity selling:
Should you choose to sell your entire annuity, you will get a lump sum of your liquidated money in one go.
Selling a portion of your annuity means that you will cash in only a part of it through a partial buyout while saving the remainder of it. You will receive payments on the rest of your annuity as previously intended.
You may also choose to sell just a period of your annuity which is an agreed length of time, and then continue receiving payments when this period has lapsed.
The thought of selling your annuity may still be quite confusing. That said, we’ve answered some of the most common questions about selling your annuity payments.
You can sell your annuity, whether it is your current or future payments, for cash. You will have the option to sell it in increments or as a whole. If you choose the former, you get a lump sum of cash upfront. Afterward, you will receive payments on a periodic basis. Should you choose the latter option, you give up receiving future payments on a periodic basis.
When you decide to sell an annuity, the length of time you will have to wait before receiving your money will depend on your chosen buyer, state regulations, and how long it takes to gain approval, especially from a court or insurance company. It may take up to around ninety days before you receive your cash after selling your annuity.
The cost of selling your annuity depends on the discount rate you are given by your buyer. Buyers will charge a certain amount in exchange for your desire for receiving the cash. Lower rates mean that you will profit more from your payout.
If you cancel an annuity, you will at the very least need to pay the income taxes from the taxable amount received. Surrender charges may apply if you have owned your annuity for around seven years or less.
You can cash out your annuity early by looking for buyers. Once you have quotes from different buyers, you can choose which one gives you the best discount rate — which is usually between 9–18%. After all the paperwork has been processed and you gain a judge’s approval, you will be able to cash out your annuity early.
Selling annuities may not be for everyone, therefore this is a major decision you may have to contemplate on. Be sure to take your time assessing the risks, and consult with experts to see if this is the best fit to your particular situation.
For alternatives to earning regular income as a senior, check out some of our past articles for more advice on all things retirement!