When Can You Cash Out an Annuity?

Timing is a big factor in choosing when to tap into your annuity money. Depending on when you purchased it, it might make sense to withdraw funds from your annuity, assuming your contract allows this. If you purchased your annuity recently, selling future payments may be a wiser choice.

Unlike people who bought annuities as part of a financial or retirement plan, structured settlement recipients are not allowed to withdraw money early. But you still have options, including selling future payments.

Or, if you haven’t yet received your settlement money, you may qualify for a type of cash advance to cover expenses while you wait.

Annuities provide a reliable stream of cash over a period of time. But your financial needs can change in an instant and may cause you to reevaluate your annuity. This is especially true in cases of medical or financial emergencies and new business opportunities.

Early withdrawals usually come with expensive tax implications and surrender fees. Penalties tend to decrease over time, so if you wait several years, you may face lower fees.

But what if you can’t afford to wait because you need cash now?

You may get more money by selling payments on the secondary market instead of making withdrawals from your annuity account. Selling payments can provide flexibility and immediate access to a large sum of cash that you can invest in other financial vehicles or use to pay off long-term debt.

Rather than waiting years to receive their payments, some people choose to sell their long-term income products.

Once the sale is approved, you will receive a lump sum of cash from your structured settlement.

Annuity owners can receive their cash within an average of four weeks. This time frame depends on the annuity type, the insurance company and the purchasing company.

A structured settlement sale can take longer due to the required court approval step, which can take between 45 to 90 days.

When it comes to selling your annuity, you have options. You can sell the whole thing, or you can sell the right to some of your future payments.

Selling a portion of your annuity is generally done by either forfeiting payments for a set time period, say one to three years, or selling a specific dollar amount for a lump sum.

A partial annuity sale allows you to sell a period of your annuity payments for a lump sum of cash. For example, you can sell the first three years of your annuity payments in exchange for the money you want for a down payment on a new home.

Throughout that time span, your payments will stop. Once three years have passed, you will begin receiving regular payments.

You may also elect to sell a portion of your annuity payments. For example, if your payments are $1,000 a month, you may sell half or $500 a month, and continue to receive the rest of the payments.

A lump-sum sale allows you to sell a specific dollar amount of your structured settlement or annuity — $10,000, for example — instead of a certain number of payments that might not total the exact amount you need.

For the partial and lump-sum options, the annuity retains a cash value. If, at a later date, you encounter another circumstance where you cannot wait for scheduled payments, you can contact the funding company to sell additional payments. These flexible selling options allow you to tailor the transaction to your needs, taking only what you need.

When someone purchases your future payments, it’s not a dollar-for-dollar exchange. Why is that? Because the overall value of your contract — say $100,000 — is only worth that amount over a long period of time. This can be explained by a concept called the time value of money, which states that a dollar in hand now is worth more than a dollar in hand later due to its interest-earning potential.

Factoring companies use discount rates to account for this discrepancy in value and make a small profit for giving you cash up front. For example, if you wanted to sell annuity payments worth $10,000, and the factoring company has a 10% discount rate, you would receive $9,000 in cash.

Some annuities don’t qualify for sale. These include annuities in tax-qualified retirement plans and straight-life annuities, which stop paying out at the annuitant’s death. These cannot be sold because the number of payments is not guaranteed.