Selling an Annuity vs Surrendering an Annuity

As part of a comprehensive financial plan, the use of annuities can be a smart decision. They provide a stream of income that can help support you financially in your retirement years. But annuities are inherently illiquid, intended to be bought and held like most retirement investments. But when life throws you a curve ball, intentions go out the window. The process of accessing cash by selling an annuity can be difficult and frustrating. Here is some information that may help.

If you are having second thoughts soon after purchasing an annuity, check with your state’s department of insurance and check their free look period. There are a few different routes an annuity owner can pursue when trying to access cash from an annuity. These are primarily selling an annuity and surrendering an annuity.

Selling an Annuity

Selling an annuity involves giving up the rights your future annuity payments to a third party, typically an annuity buyout company in the secondary market. In return, the annuity buyout company pays you a lump sum of cash, up front.

There are several factors you should consider when selling an annuity including your age, other retirement assets you own, the performance of the annuity, tax implications, how long you’ve owned the annuity, etc. First, you need to make sure the annuity is transferable so you know you can sell the annuity. You can find this information by referring to your annuity documents or contacting your annuity provider or broker.

The most common reasons for selling an annuity are typically:

  1. The annuity owner might decide the annuity no longer fits the intended goal when the annuity was purchased.
  2. The annuity may also have been inherited.
  3. Maybe you have incurred a financial emergency.
  4. Finally, you could be concerned about the financial condition of the insurance company that issued the annuity.

Some annuity holders who experience a temporary crunch or who are on the fence about selling an annuity decide to sell just a portion of their future payments. If you’re still wondering, can I sell my annuity, the answer is yes. Additionally, you can do a:

  • Full Sale
  • Partial Sale
  • Split purchase

Annuity Transfer-Some annuity owners still want their funds to be invested, just not through the current annuity. There can be a number of reasons including frustration with the fees or the annuity no longer fits the needs of the owner. There are some money managers who will pay

Surrender your Annuity

‘Surrendering’ your annuity involves going through the annuity issuer (an insurance company) and withdrawing funds in that manner.

Some annuities have what are called surrender charges that apply when you attempt to access money generally within the first 5-7 years. The fees are somewhat front-loaded, then taper down through the remainder of the surrender period. The fees, especially early in the surrender period, can be quite high. A typical surrender period schedule, shown with associated fees, might look something like this:

Holding Period


Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8
Surrender Fee 7% 6% 5% 4% 3% 2% 1% 0%

As you can see, the annuity is designed to be held, with serious repercussions if you need to sell your annuity. Most annuities will allow you to withdraw a certain amount of your initial investment without penalty, the amount could be smaller than your unexpected needs.

For example, let’s assume you bought an annuity for $100,000 and you need to withdraw some cash for an unforeseen expense before the surrender period ends. You don’t want to but life happens. Perhaps you need to withdraw $30,000 in the third year since you purchased the annuity. As per your contract, you can withdraw $2,000 per year without incurring any penalty or surrender charge. But the remaining $28,000 could be subject to a 5% surrender charge, as per the graph above. The withdrawal could end up costing you a hefty $1,400. Further, there could potentially be tax implications.

Annuity Transfer

An annuity transfer is when. Some money managers may reimburse a portion, or all, of your surrender fees with a qualified transfer. Sometimes, this is accomplished through waved account fees for a period of time until the surrender charge has been ‘repaid’. Typically, this involves a substantial transfer of maybe $500,000 but may be accomplished with a lesser amount depending on the manager. It is worth shopping around to compare the different fee structures between an annuity and a more traditional investment account with a financial advisor.