Sometimes situations change; what you thought you needed - now you don't. This is correct as individuals transition from working to retirement. One investment decision which will appear to be not possible - or at least costly - to get out of, is an annuity. As soon as these guaranteed payments begin it appears you can't get your investment back. What once looked like a secure source of retirement financial benefit not anymore matches your situation. Even when you're in the accumulation stage with a tax-deferred annuity, you could pay serious surrender costs to get your cash back. Is there a different alternative?
Yes! You could sell your annuity - if it's the right type - in what's called a 'secondary market for annuities'. In this secondary market, companies buy established annuities. After that, they repackage them into investments to sell them to institutional investors.
These firms offer their 'bids' to purchase your annuity. A bid's rate is relying on the:
• Total quantity still to be paid out of your annuity,
• Period of time for that payout to occur,
• Present prevailing interest rate, and
• Annuity company's economic strength, and of course
• Bidder's profit margin sought in the transaction
You have to carefully think about whether or not this kind of a purchase assists you equally long-term along with short-run and if it will get you much more retirement financial benefit, if that's your goal.
You might 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 attempt to market your annuity on the secondary market, be sure to get in touch with the company that offered you your annuity. It might have a payout feature adequate for you that's not component of the contract. Also, determine how much income tax the sale will trigger to determine if it is worth selling (bring your most recent statement to your financial advisor). Finally, your cash or retirement financial benefit needs might be satisfied by marketing just part of your annuity, that you can do.
An example that may trigger a retired person to cash in his immediate annuity is if he finds himself a working opportunity which will create a substantial retirement financial benefit - beyond what he expected. The annuity payout just forces him into higher income tax bracket that undermines its worth to him. Another would be a windfall (e.g. an inheritance) of some type that can effortlessly substitute the purpose of the annuity he has.
Note: the sale of an annuity may incur expenses and commissions and may be a taxable event taxed as normal revenue and that this kind of proceeds reinvested may not always generate more retirement financial benefit.