Sometimes circumstances change; what you thought you needed - now you don't. This is true as people transition from working to retirement. One investment that may appear to be impossible - or at least costly - to get out of, is an annuity. Once those guaranteed payments start it seems you can't get your investment back. What once looked like a secure source of retirement income no longer fits your situation. Even if you're in the accumulation phase with a tax-deferred annuity, you could pay serious surrender charges to get your money back. Is there another option?
Yes! You can sell your annuity - if it is the right type - in what is called a secondary market for annuities. In this secondary market, firms buy existing annuities. Then, they repackage them into securities to sell them to institutional investors.
These firms offer their "bids" to buy your annuity. A bid's price depends on the:
- Total amount still to be paid out of your annuity,
- Length of time for that payout to occur,
- Current prevailing interest rate, and
- Annuity company's financial strength, and of course
- Bidder's profit margin sought in the transaction
You must carefully consider whether such a sale helps you both long-term as well as short-term and if it gets you more retirement income, if that is your objective.
You may not sell "qualified" annuities - those in an IRA or other retirement account because of the tax implications. Only non-qualified annuities can be sold for cash.
Before you try to sell your annuity on the secondary market, be sure to contact the company that sold you your annuity. It may have a payout feature acceptable to you that is not part of the contract. Also, find out how much income tax the sale will trigger to see if it's worth selling (bring your most recent statement to your accountant). Lastly, your cash or retirement income needs may be satisfied by selling only part of your annuity, which you can do.
An example that might trigger a retiree to cash in his immediate annuity is if he finds himself a working opportunity that will generate a significant retirement income - beyond what he expected. The annuity payout just pushes him into higher tax bracket that undermines its value to him. Another would be a windfall (e.g. an inheritance) of some sort that can easily replace the purpose of the annuity he owns.
Note: the sale of an annuity can incur costs and commissions and may be a taxable event taxed as ordinary income and that such proceeds reinvested may not necessarily generate more retirement income.