How to Collect on an Annuity

By: Dylan Armstrong

Your annuity company could charge a penalty if you cancel your contract.

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An annuity is a long-term investment contract that is commonly used by Americans to save for retirement. To buy an annuity, you need to make a deposit with an insurance or investment company. Your company will invest your savings and grow your balance over time. Whenever you are ready, you can request a payout from your annuity. At this point, you will have a few different options to collect on your annuity. The best payout option depends on how much money you need and on how long you want to receive payments.

Step 1

Contact your annuity company and ask to meet with a representative to discuss your options. Each annuity company offers a unique combination of payment options, so meeting with a representative ensures you know exactly what you can do.

Step 2

Review the different payout schedules available for your annuity. Companies typically offer a choice between monthly payments for the rest of your life and monthly payments for a fixed number of years.

Step 3

Select an annuity monthly payout schedule if you're ready to spend down your entire annuity balance. Once you start receiving payments, you can't stop.

Step 4

Ask if you can make a partial withdrawal from your annuity account. Many companies let you take out a percentage of your savings without charging a penalty. This is helpful if you need some money, but aren't ready to start receiving monthly payments.

Step 5

Cancel your contract to take out all your money in a lump-sum payment. You'll owe income tax on all your annuity gains that year. In addition, you might also get charged a penalty by your annuity company for cancelling your contract early.

Warning

  • If you make a partial withdrawal or cancel your contract before you turn 59 1/2, the IRS will charge an extra 10 percent penalty on top of income tax on your investment gains.

References

About the Author

Dylan Armstrong specializes in insurance, investing and retirement planning. He has also worked as a life and health insurance salesman and holds a Bachelor of Science in finance from Boston College.

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