If the COVID-19 crisis or other situation has rendered you strapped for cash, you might be considering selling off various assets or investments. For instance, you could sell an annuity, an investment property, and/or collectibles in return for a sum of money that can then be used for your current financial needs. If it is an annuity that will be sold, you could either cancel the contract with the insurance company, or you may be able to sell it to an investor in the secondary market.
But how much will going this route really end up costing you?
Unfortunately, it could come with a hefty price tag – especially if the transaction will alter what you have earmarked for other current or future financial objectives. Because of that, there are some important factors you should consider before going into the secondary market and selling an annuity.
Items to Consider Before You Sell an Annuity for Cash
Just like with most other financial decisions, there are some important pros and cons to think about before you sell an annuity that you already own. Considering all of these can help you to determine whether or not the transaction will really make sense from a current and future financial standpoint.
These factors include:
- Surrender charges
- IRS early withdrawal penalty
- Other savings you have in place
- Need or desire for tax-advantaged growth (especially if you have already “maxed out” the annual contribution limit on your IRA and employer-sponsored retirement plan)
- Anticipated retirement income needs
- Other sources of retirement income
- Current health condition
- Life expectancy
Annuities are insurance products – and as such, they will typically come with early withdrawal – or “surrender” – fees. Depending on the specific annuity, these charges could be rather hefty, especially if you have just recently purchased the annuity. So, before you decide to sell an annuity, you really need to make sure that you are aware of how much of the contract’s value the insurance company plans to hang on to.
Withdrawals that are considered gain – or funds that have not yet been subject to taxation yet – will be taxed, and this can further reduce the amount of net spendable funds you end up with. Further, if you make such withdrawals before you have turned age 59 ½, you may also incur an additional 10% “early withdrawal” penalty from the IRS.
On top of immediate financial concerns, if you sell an annuity, it could also possibly hinder you in other areas. As an example, if your current health condition is poor, and you have no life insurance in place, you could end up forgoing a future death benefit payment from the annuity to your loved ones.
Also, many annuities today have features like penalty-free access to funds in the event that you are diagnosed with a terminal or chronic illness and/or if you have to reside in a nursing home for a minimum period of time.
Therefore, selling an annuity could also reduce your ability to fund high healthcare and long-term care-related costs – both now and down the road – making it necessary to come up with other solutions for these needs.
To Sell an Annuity or Not to Sell an Annuity – That is the Question
Doing away with any financial or insurance product that you hold in your portfolio should first be considered with the help of a retirement specialist. That way, you can take a closer look at other possible options for generating cash and/or for covering various needs.
If you would like to talk with an annuity specialist, Annuity Gator can help. Our mission is to educate consumers and financial professionals regarding annuities and how they work. So, feel free to contact us at (888) 440-2468 or through our secure online contact form and we will answer any of the questions or concerns that you may have.