Cash Out Your Annuity

When you need a down payment for a new home or to pay for a life emergency, it may be time to cash out your annuity or structured settlement. How much money you can get from your future payments depends on a variety of things – interest rate, current demand and how much you need now. Learn how time impacts value and when you should sell payments.

How To Cash Out Your Payments

Rather than waiting years to receive their payments, some people cash out of their long-term investment. When that happens, there’s a short but set process for doing this:

Research Annuity Service Companies

Start by shopping around for the right annuity buyer. Many companies specialize in this service, but there are still red flags to watch for. Trustworthy annuity service companies like will have positive reviews, offer free quotes and avoid high-pressure sales tactics.

  • Get a quote

    No matter what the quote is, it should suit your needs. You can find the current value of your annuity by entering factors like the size and frequency of payments into our current value calculator. offers free, competitive quotes in minutes. If we give you an offer that satisfies your financial goals, proceed with the sale.

  • Submit your paperwork

    Our experienced customer service representatives will collect information from your annuity or structured settlement contract next. This information helps us know the terms and scope of your future payments. Other paperwork you’ll need to provide include identification, tax forms and a contractual document we provide. Our lawyers will evaluate your situation and see if you qualify for a cash advance.

  • Present your case before a judge

    Selling your annuity is a legal process, so the last step involves a brief hearing to obtain court approval of your transfer. Federal and state laws have this safeguard in place to ensure all the details of your transaction are disclosed fully and make sure the sale is in your best interest.

    In between each of these steps, our team of attorneys will handle all of the nuanced details like drawing up the agreement and securing a court date. Once the sale is approved, we’ll send you a lump-sum of cash.

There are things that happen between these steps, but these are things that someone else handles. That includes securing a court date and writing up the actual agreement. But after Step 3, we send you a lump-sum of cash.

Choosing a Cash Option

If you decide not to wait for your money, you have options for how and when you get it (including an immediate cash up-front advance). You can choose from partial, whole or lump sum options.

With a partial cash out, you transfer a portion each payment and keep the rest of your future stream intact. Selling the whole annuity gives you access to a larger cash pool, allowing you to invest funds or make a bigger purchase. The lump sum option allows you to sell a group of payments now and leave the rest available for retirement.

For the partial and lump sum options, some cash remains in the annuity. If at a later date you encounter another circumstance where you cannot wait for scheduled payments, you can contact the funding company to sell remaining payments.

These flexible selling options allow you to tailor the transaction to your family’s needs.

Getting Cash Out of Your Annuity

Should You Pull Your Money Out Sooner?

Consider your options carefully before pulling money out of your annuity. There are two types of annuities — immediate and deferred — and both will suffer tax penalties if you decide to withdraw cash early. Immediate annuity payments begin almost immediately after receiving the annuity and continue over a predetermined term. A deferred annuity accrues the amount of the annuity and related interest over time before being released to the recipient in a payment structure. Deferred annuities are typically used to fund retirement. With both annuities, early withdrawal can mean paying surrender charges, tax payments due on interest earned and up to a 10% penalty if you withdraw before age 59.5.

On the other hand, the reality of life is that… stuff happens. Hopes, dreams and the best-laid plans get interrupted by situations that have to be dealt with or taken advantage of. That goes for expensive emergencies and new business opportunities.

When those times hit, you need to evaluate your budget and determine how much money you need for unexpected expenses. In some cases, facing penalties or tax payments for tapping into an annuity can be worth it to help your family through medical costs, car or home maintenance, college tuition and other needs.

Cashing Out Timeline

Selling an annuity is a legal process that must go through the court system, so it can take some time to get your funds. In many cases the process can take 45 – 60 days. This process is designed to protect you and make sure the sale is in your best interest. If you’re in immediate need of funding, the company purchasing your annuity may offer small cash advances that are available immediately.

Tax Implications of Cashing Out

Financial & Tax implications of Selling Your Annuity

Financial advisors sometimes suggest younger annuitants sell their annuity payments when their investment doesn’t make sense for a long-term portfolio. In that sense, investors can take advantage of low tax rates to avoid taking a bigger tax hit down the road.

Annuitants also worry that receiving payments during their retirement years – when pensions, other savings plans and Social Security checks arrive each month – can knock them into a higher tax bracket.

And those with taxable estates want to provide a larger payout for heirs by putting money in a life insurance policy rather than an annuity.

Withdrawing funds from the insurance company that issued your annuity comes with expensive fees, especially during the first few years of ownership. You would want to compare the potential insurance penalty to the discounts rates if you were to sell payments to a funding company.

Withdrawing From Insurance vs. Selling Annuity Payments

Why You’re Not Receiving The Full Value

When someone purchases your future payments, you won’t get a dollar-for-dollar amount in your cash-out check. Why? Because the overall value of your investment – say, $100,000 – is only worth that amount over a long period of time. Today, it’s value to buyers is less.

Variables Affecting the Cash Value of Your Annuity

Funding companies put together a discount rate, the amount of money subtracted from the cash balance in your annuity or structured settlement. They calculate the discount using variables that are always moving. Those include:

  • Current demand for purchasing payments
  • Impact of interest changes and inflation on payments
  • Time investment the buyer puts in while waiting for payments
  • Value of providing upfront capital

The discount rate that gets applied to every annuity quote – which reduces the cash total you get for your payments – is in part a reflection of how the time value of money impacts your payments.

Present Value of Your Annuity

People considering getting money out of their annuity are usually interested in the bottom line – what payments are worth right now. However, determining worth isn’t as simple as looking at an account balance or tallying the amount currently sitting in your annuity. You have to look at the big picture.

Determining the Worth of Your Annuity
Present Value of Your Annuity

The formula to calculate present value uses these variables: cash flow period or dollar amount of payments received (C), interest rate (i) and number of periodic payments (n).

For example, a $5,000 annuity paying out five annual payments of $1,000 at 6 percent interest has a present value of $4,210.20.

The present value is less than the original total. Why? Future payments are subject to inflation. This means when you decide to sell your annuity, the sum you are paid will be less than the amount you originally paid.

If you purchased an annuity in 2003 that guaranteed you $1,000 a month for life, it would probably cover rent and utilities. It might even provide enough leftover funds for groceries. Fast-forward 10 years and inflation hikes the cost of rent and utilities. You might still afford those rent and utilities, but you might not have enough to pay for groceries.

How Interest Affects Your Annuity
Future Value of Your Annuity

Future Value of Your Annuity

The future value of an annuity describes how much payments will be worth in the future, once they accumulate interest. This total is larger than the original principle invested.

Take an investment of $5,000 made in five annual payments of $1,000 each at 2 percent interest. The future value of that annuity at the end of the fifth year would be $5,204.04.

The future value is determined using a standard equation, where r equals insurance rate and n equals number of payments.

Future value = Annuity value x [(1+r)n – 1] / r

However, even though the numerical sum is larger, the amount of goods and services that can be purchased with this sum will decrease. For example, the price of milk today is less than it will be a decade from now. A sum of $5,000 can buy more today than it can a decade from now.

Therefore, even though an annuity matures, growing in size as interest accumulates, the rate of interest is often so low that the amount of future value is only marginally larger than the original investment.

This mathematical concept helps demonstrate how annuities are primarily a tool for sheltering money, rather than an investment designed to significantly increase savings.

Future Value of an Annuity vs. Original Investment

Does Surrendering Payments Make Sense?

Often, annuity owners ask if they can get more value from their annuities by surrendering payments. The answer depends on the fine print in the contract set up by the insurance company that issued your annuity. Each contract specifies what size fee you owe based on the size of your annuity and how long you have owned it.

In most cases, surrendering an annuity is not a dollar-for-dollar transaction and the fees involved drastically reduce the amount the insurer pays you.

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