Selling Annuities

Annuity Sale Options

Selling your annuity comes with more flexibility than you might think. You can choose between one of three options:

1. Entire annuity

Selling your entire annuity provides you with a lump sum. The downside is that you won’t receive any income from your annuity in the future, which could decrease your financial security.

2. Portion of future annuity payments

An alternative is to sell a certain number of your future payments. You get a smaller lump sum now, then start receiving payments again once the period of the sold payments is over. If you sell your payments for a three-year period, your monthly annuity payments will resume in year four.

3. Portion of dollar amount

Instead of foregoing your entire annuity payment, you can sell a portion of each payment for a certain period. You get a small lump sum, but still receive monthly payments at a lower amount.

Before you decide, think about your short-term and long-term financial goals. Getting the cash to take advantage of opportunities or overcome financial hardship comes at the cost of less long-term financial security.

The Process of Selling Annuities

There are four primary steps to sell your annuities.

Contact credible annuity buyers and get multiple quotes

Select the best quote and complete the application

Appear before a judge to get court approval

(for structured settlements only)

Receive your cash

Common Reasons to Sell Annuities

There are many reasons to consider selling your annuity payments.

Selling investment and inherited annuities doesn’t require court approval. However, selling a structured settlement annuity requires a judge’s approval. The judge will confirm that the sale makes basic financial sense for you. They’ll verify you understand the implications of selling your annuity and ask about how you plan to use the funds.

Common reasons people choose to sell their annuities include:

Job Loss: Perhaps you’ve lost your job or the ability to work due to an illness or accident related to your annuity, or maybe you’ve simply stumbled upon hard times. In these situations, people often choose to get a full or partial lump sum to help tide them over until replacement income is found.

Investment Opportunities: You can also sell your annuity to take advantage of a new business opportunity, launch your own company, or pay for your home.

Pay Debt and/or Medical Bills: Selling your annuity can sometimes save you money over time if you’re paying down a lot of debt. This could include credit cards, student loans, auto loans, and medical debt. Depending on how much you owe and how much you’re paying each month, cashing out your annuity to help reduce those balances could be extremely beneficial.

Education: Whether it’s for you or a family member, paying for college tuition or other education expenses with your annuity funds can be extremely beneficial. You can save on interest from student loans and increase your earning potential with a more advanced degree.

Determine exactly how much money you need so you don’t sell more than necessary.

Discount Rate Explained

Every offer you receive from an annuity buyer includes a discount rate. This is the annual rate of return the buyer requires to provide cash up front. In other words, you receive less than the total of the payments you sell. It’s how the buyer makes money on the transaction—equivalent to banks charging interest when lending money.

Here’s an example. Say your remaining annuity payments total $100,000 over the next 10 years. Your buyer won’t give you the full $100,000. Instead, the buyer uses their discount rate to determine how much those payments are worth to them today, then calculates a reasonable offer based on that number.

Companies mostly use their expectations of future interest rates to determine their discount rate. Discount rates between 9% and 18% are typical. The higher the discount rate, the less money you receive. It’s important to shop around and compare offers from different annuity buyers to make sure you get a fair deal.

While selling your annuity takes time, don’t rush the decision-making process. Decide how much money you need, then compare different offers to choose the one that best serves your current and future financial situation.

Pros and Cons of Selling Annuities

Like any major decision, selling an annuity comes with pros and cons.

Tax Implications of Selling Your Annuity Payments

U.S. federal income tax treatment depends on the type of annuity you sell. For structured settlement annuities, there’s no tax because that money is not considered income.

However, there can be tax implications when selling investment or inherited annuities, so get advice from a financial or tax professional.

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