Sometimes situations change; what you thought you wanted - now you do not. This is true as individuals transition from working to retirement. One investment decision which will appear to be impossible - or at least pricey - to get out of, is an annuity. Once those guaranteed payments begin it appears you can't get your investment back. What one time appeared to be a safe retirement benefit no longer matches your circumstance. Even if you're in the accumulation phase with a tax-deferred annuity, you can pay serious surrender costs to obtain your money back. Is there another alternative?
Sure! You can sell your annuity - if it's the correct kind - in what is called a 'secondary market for annuities'. In this secondary market, companies buy existing annuities. After that, they repackage them into investments to sell them to institutional investors.
These companies provide their 'bids' to buy your annuity. A bid's price is relying on the:
• Total amount still to be paid out of your annuity,
• Period of time for that payout to happen,
• Current prevailing interest rate, and
• Annuity company's financial situation, and naturally
• Bidder's profit margin sought in the transaction
You have to cautiously consider whether this kind of a purchase assists you both long-term along with short-term and if it will get you much more retirement benefit, if that is your objective.
You might not sell 'qualified' annuities - these in an IRA or other retirement account because of the tax implications. Solely non-qualified annuities may be sold for cash.
Just before you attempt to market your annuity on the secondary market, be sure to get in touch with the annuity company that issued your annuity. It might have a payout feature acceptable to you that is not part of the agreement. Also, determine how much income tax the purchase will trigger to determine if it's really worth selling (bring your most recent statement to your accountant). Finally, your cash or retirement benefit needs might be satisfied by liquidating just part of your annuity, which you can do.
An example that might trigger a retired person to cash in his annuity is if he finds himself unexpectedly working and will generate a substantial retirement benefit - beyond what he anticipated. The annuity payout just forces him into greater tax bracket that undermines its value to him. An additional situation could be a windfall (e.g. an inheritance) of some type that can easily obviate the need for the annuity. You now know that annuities may have more liquidity than you though if circumstances change, adding to their retirement benefit.
Note: the sale of an annuity may incur expenses and commissions and could be a taxable occasion taxed as ordinary income and that such proceeds reinvested may not necessarily generate much more retirement benefit.
Leave a Reply