It’s time for another edition of Dollar and Cents. This is where I answer one of your questions.

If you have a question, either use the contact form on the blog or use my Facebook Fanpage.

My wife and I were “sold” a joint annuity several years ago by an advisor that we’re no longer working with. We currently have a sizeable gain but we’re not very confident in the insurance company that holds the annuity. We’re considering cashing the annuity out. Does that seem like the right thing to do?

Considerations Before Cashing Out an Annuity

I see a lot of people in Mark’s situation that are disgusted with their annuities and just want to cash them out and move on. I had one client that had a decent sized annuity with Valic (used to be owned by AIG). They were so disgusted that AIG received a government bail out a few years ago that they wanted to cash out the annuity immediately. (FYI, the annuity was not sold by me).

I emphasized some of the key items to consider before cashing out an annuity but also wanted to highlight them here.

  1. Early Withdrawal Penalty.  Cashing out your annuity before 59 1/2 could leave you with a 10% penalty.  That’s never fun.  Trust me.
  2. Taxes.   And these aren’t favorable capital gain like taxes.  Oh no!  We’re talking ordinary income tax with is usually much higher.
  3. Surrender Charges.  How long have you had the annuity?  Some annuity contracts will last 3-15 years.  Yes, 15 years!   You want to verify this before cashing out and paying a stiff surrender charge.
  4. Forfeit Any Guarantees.  Many annuities offer death benefits and income benefits nowadays.   By cashing it in or doing a 1035 exchange to another annuity contract, you could be forfeiting some of these guaranteed benefits.

Be sure to do your thorough research before cashing out your annuity!


With each Dollars and Cents video we want to provide some follow up links where you can get some additional information on the topic. If you are interested in learning more on annuities here are some great reads:


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