How liquid is an annuity?

How liquid is an annuity?

Keep it simple answer: In general you have access to 10% of your annuity value every year without any penalties.

If you keep your annual withdrawals below 10% of your current account value, you won’t have any problems with liquidity or penalties. If you anticipate needing more than 10% annual withdrawals, then don’t put that money into an annuity.

There are a couple parts to this question. Keep in mind that contracts vary from company to company, but I will answer this one under the theme of “Generally Speaking”

10% penalty free withdrawals.

Most annuity contract allow you to take out 10% of your account value every year without any penalties.

If you have $100,000 in your annuity, you can take out $10,000 penalty free .

But if you take out $12,000 then you exceeded the 10% free withdrawal by $2,000.

The $10,000 has no penalty. The $2,000 will have a penalty.

If you wanted ALL of your money back, (the full $100,000), the same rules would apply.

$10,000 would come back penalty free.

There would be a surrender charge on the excess $90,000 withdrawal.

The exact amount of the penalty will depend on your particular annuity contract and where you are on the surrender charge schedule.

Remember, the surrender penalty only applies to withdrawals in excess of the 10% free withdrawal.

Systematic Withdrawals

With most annuity contracts you can set up monthly systematic withdrawals. People do this when they want to start getting some retirement income.

Lifetime payments using a Living Benefit like an income rider would also fall under systematic withdrawals.

You just need to fill out a form that the insurance company or your agent can get for you and the systematic payments will start.

As long as the total for the year, does not exceed 10% of your account value there will never be any penalties.

NOTE: With an income rider you are allowed more than a 10% withdrawal if your account value goes below a certain point.

These systematic withdrawals can be sent to you as a check or they can also be set up to automatically deposit into your checking account.

A One Time Withdrawal:

Many people who wonder “How liquid is an annuity?” may only be thinking of occasional withdrawals.

If you need a one time withdrawal from your annuity, either you or your agent needs to contact the insurance company and let them know what you want.

Some companies are OK with just a verbal confirmation on the phone, and some companies may require you to fill out a withdrawal slip.

Once the insurance company gets your request it usually takes a couple days to process the request and then your check is mailed to you.

If you need it quickly you can choose to pay for overnight mail.

Nursing home or terminal illness waiver

Many annuities have a nursing home or terminal illness waiver built in. Typically this says that if you are confined to a qualified nursing facility or are diagnosed with a terminal illness, you can get at your account without any penalties. The details and waiting period varies from contract to contract so be sure to ask your agent.

Return of premium

Some annuity contracts have a return of premium rider. This also varies from company to company but in general it means that you are able to get back your entire initial investment if you change your mind or something else comes up down the road.

Even if there is a surrender charge schedule, if you have the return of premium rider you know you can at least get back what you put in.

There may be a fee for this rider.


With most annuities you can decide to annuitize them. That is a fancy term for “turning a deferred annuity into an immediate annuity”. So you are essentially turning over the annuity value to the insurance company and in return they will make monthly payments to you for the rest of your life, or a period of years, whatever you choose.

Summary: How liquid is an annuity?

There is moderate liquidity in most annuities. Just take withdrawals according to the term of the contract and you will not have any problems. If you need more liquidity than what the annuity provides, then don’t put money  into an annuity.

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