401Ks and other forms of retirement savings penalize you for withdrawals. A great benefit of investing in annuities is that you determine when they payouts begin when you sign your contract. One of the most frequently asked questions that the experts at Annuity Genius receives is how the withdrawal process work and if there are any types of penalties that can happen from withdrawing too often. We understand that the process is difficult so we’ve broken it down for you.
Let’s start with the fact that most annuity contracts guarantee an income in the future. This is where you will determine whether you want to draw, let’s say, 4%, 5% or 6%, each year for the remainder of your life. So for instance, if your annuity has a value of $100,000 you and you decide that you’d like to receive payouts off 6% each year, you would be receiving $6,000 a year for the remainder of the year. If you end up needing more money than this $6,000 and decide to make a withdrawal, it would be considered an extra withdrawal.
Each insurance company handles these types of situations differently. One of the ways that an insurance company may handle this is by reducing the amount of the annuity dollar for dollar. So for instance, if you withdrew an extra $4,000, your annuity would go from $100,000 down to $96,000.
For other insurance companies, they may handle extra withdrawals by pro rating the money. So let’s say that your annuity guaranteed payout is $100,000. In this, your account holds a value of $60,000. In the instance that you take an extra $6,000 out of your annuity’s account, the insurance company would reduce your guarantee by 10%. This is obviously not as ideal as the prior situation, because of how much your guarantee is reduced. Some insurance companies can get even more brutal with extra withdrawals and cut not only your guarantee, but the amount you’re allowed to withdraw also, down to 50% of what it originally was.
Annuities are not simple contracts. They require a great deal of understanding for the best possible outcome, and the finance experts at Annuity Genius understand the process and what each contract will include. Contact us today for a breakdown of any investments that you’re looking into.