How long does it take to receive money from my annuity?

Annuities are financial contracts between you and insurance companies that can provide a steady income stream for your retirement. You receive a series of payments over a predetermined period at fixed intervals. 

How long does it take to receive an annuity check? 

It depends on the type of annuity you purchased, your age, the surrender period, and the payment method you prefer. 

Annuities are long-term investments that typically aren’t liquid. They’re often used as part of a retirement strategy and have special penalties for early withdrawal. Most people start receiving payments after several years. Depending on the insurance company, the transaction can be as quick as three business days or a long, drawn-out process taking over 90 days. 

This post explores the different annuities, payment periods, and payment plans that affect how quickly you receive your money. 

The Basic Structure of the Annuity Matters

How long does it take to cash out an annuity? It depends on how you’ve structured the investment vehicle. The typical plan has an accumulation and an “annuitization” phase.

You can make a lump-sum payment or periodic deposits to the insurance company during the accumulation phase. Then, at a predetermined date, the contract annuitizes, allowing you to receive regular payments based on the nature of the product you purchased and set interest rates. 

Read more: Is an annuity garnishable?

The common classification for the two types of annuities is immediate and deferred.

Immediate Annuities

With an immediate annuity, you make a lump sum payment to the insurance company, and they pay you a regular income for the rest of your life. If you die before getting back what you paid into the plan, your beneficiary will continue to receive payments until they have been recouped.

The payments from an immediate annuity typically begin right away, with the money paid out of your investment principal. The withdrawal amount and penalties incurred depend on the surrender period and relevant charges. 

Deferred Annuities

Deferred annuities start with payments that go toward a savings account balance. These can be regular monthly or annual contributions. Then, the insurer begins to make payments that act as an excellent retirement income stream.

You may lack the flexibility of receiving payments immediately, typical with the immediate annuity. If you invested in a deferred annuity and are not currently being paid out, you can take a loan against the value of your contract until the scheduled payments start to trickle in.

Immediate vs. Deferred Annuities 

If you’re considering investing in an annuity but are concerned about potential issues with accessing cash, then the immediate plans may be appropriate for your needs. Immediate annuities begin paying after purchase but may require a more considerable upfront investment than deferred annuities. 

However, there’s no guarantee that an immediate annuity will allow you access to all of your funds when you need them. Therefore, you should assess all available options carefully before making a decision.

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Your Age Matters 

Annuities are long-term investments meant to supplement retirement income, so they do not typically payout immediately or at a single date in the future. Instead, the payments are at regular intervals, at a penalty-free percentage of the principal amount. You can cash out your annuity at any point but at a high financial cost. 

The IRS considers annuities as tax-deferred retirement accounts. You can’t withdraw funds before turning 59½  without incurring a 10% penalty. The tax implication incentivizes contract holders to avoid cashing in on their annuities until they retire.

If you decide to make an early withdrawal before hitting 59½ years old, you will pay the 10% IRS penalty, the insurer-determined surrender charge, and the traditional income tax. However, there are exemptions to the penalties such as death, disability, or diagnosis of a terminal illness. 

The Surrender Period Matters 

The surrender period is a designated time frame during which you may withdraw money from your annuity. Most contracts have a surrender period of one year, but it can be any length of time set by the insurer. During this surrender period, the annuity holder can withdraw the value of the annuity in a lump sum.

The amount of money that you can withdraw depends on the terms of your contract and may be subject to fees or penalties. You can cash out on all or part of your annuity during its surrender period for multiple reasons, including:

• You’re behind on bills and need emergency cash.
• You are experiencing financial problems and need to restructure your debts.
• You want to use some money from your annuity for a large expense like buying a car or paying for college tuition without having to incur taxes when you take the money out later.

It’s not a good idea to cash out a policy before the end of its surrender period, as doing so will probably result in a loss due to high fees. The surrender period begins immediately when the policy or contract is issued. It ends either at a specified date in the future or when the owner dies. 

The Surrender Charges Matter 

Your annuity contract will have a clause detailing the surrender charges if you cash out early. The surrender charge is usually expressed as a percentage (say 5%) of your account value, and there may be more than one percentage depending on how far into the contract you are.

Your annuity contains two important dates listed: an “issue date” and a “surrender charge expiration date.” The issue date is when you purchased your annuity, while the surrender charge expiration date marks when the penalty fees expire.

For example, suppose you purchased an annuity in January 2018 with an expiration date of January 2019 but don’t want to cash it out until 2025. In that case, your first set of surrender charges will expire in January of 2019. After the first year, you won’t have to pay any penalties for cashing out before 2025.

It’s important to note here that even though the first period of surrender charges has expired by 2019, there may still be other periods with their own set of penalties for cashing out before 2025. 

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The Process of Cashing Out 

If you decide to bear the penalties, it can take two weeks to 45 days to receive the money. It could be shorter or longer, depending on the issuing insurer, the terms of your policy, and the prevailing circumstances of your withdrawal. For example, if you wish to take a one-time payout while leaving the rest of the annuity intact, it will probably take less time than cashing out the entire amount.

The process is typically straightforward with these four major steps:

• Read through your annuity agreement. You should find the annuity contract, reading through the fine print to identify the early-withdrawal clauses. Determine the surrender penalties you will incur from cashing in early.
• Contact your insurance company. Inform the insurer you wish to cash in your annuity by calling during business hours. The insurer will likely want to know why you are cashing out. 
• Discuss the terms of the early withdrawal. The representative can ask additional questions to determine which transaction to process. The insurer will provide the necessary documents to sign to approve the transaction. 
• Wait for approval. The waiting period may differ depending on the prevailing circumstances. A lump-sum payment may take a few business days while cashing in the entire amount requires several weeks or months. 

The process can differ depending on the insurer’s terms and the surrender time clauses in your contract. 

Loans Against Your Annuity

If you need immediate cash from your annuity, you might consider taking out a loan. Annuity holders can take out credit against the value of their contract and do not need to repay the loan with interest until the end of the contract term. The time to process the loan depends on the financial institution you use. 

Any interest on a loan is charged based on the rate you originally agreed upon when purchasing the annuity. Some people who take money out of their annuities take out more than one loan over time to avoid waiting until the end of their contract term to access all their money. 

Taking a series of loans doesn’t increase your interest costs because they’re all charged based on your initial rate. However, multiple loans will reduce the amount of money you have invested in your account over time and lead to lower payouts when your contract is annuitized.

Payment Methods Also Matter 

After processing, the method you choose to receive your money can also affect the period it takes for the funds to fill your pockets. Common payment options that you can use include:

• Electronic Fund Transfer (EFT). Annuity payments are sent from your insurance company to your bank via the Automated Clearing House (ACH) network. Depending on your timing and the financial institution you select, it will most likely take one to two business days for the funds to reflect in your bank account.
• Mail. Insurers will send your check to the address you provided when you applied for the annuity. You will receive a check every three months or per your payment plan specifications.
• Cashier checks or money orders. Some insurance companies offer cashier’s checks or money orders as an alternative means of receiving their annuity payments. Money orders may attract an additional fee. (For more information, read our “How to Fill Out a Money Order“).

Depending on your urgency and reason for withdrawal, you can choose the appropriate payment method that won’t delay your payments. 

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Case Studies: How Long Does It Take to Receive Money from My Annuity?

Case Study 1: Immediate Annuity Payout

Mrs. Johnson, aged 65, decides to purchase an immediate annuity with a lump-sum payment of $500,000. She opts for a single-life annuity with monthly payouts. In her case, once the annuity is established, the insurance company begins processing her payment immediately. Mrs. Johnson receives her first annuity payment within a month of setting up the contract.

Case Study 2: Deferred Annuity with Lump-Sum Withdrawal

Mr. Davis, at 50 years old, invests $200,000 in a deferred annuity with a 10-year accumulation phase. He plans to withdraw the full amount as a lump sum after the accumulation period ends. Once the accumulation phase concludes, he contacts the annuity provider and submits the required paperwork. The insurance company processes his request, and he receives the entire sum within a few weeks.

Case Study 3: Fixed Period Annuity Payout

Ms. Thompson, aged 60, purchases a fixed period annuity with a term of 20 years. She invests $300,000 and chooses monthly payouts. In this case, Ms. Thompson must wait until the agreed-upon term is over before receiving her final payment. After the 20-year period elapses, the annuity provider stops the payments, and Ms. Thompson receives her last installment within a month.

Case Study 4: Variable Annuity with Guaranteed Income Rider

Mr. Roberts, aged 55, invests $400,000 in a variable annuity with a guaranteed income rider, choosing a lifetime income option. He becomes eligible for regular income payments after the accumulation phase. Once he contacts the insurance company to activate the guaranteed income rider, his first payment is processed and disbursed within a month.

Bottom Line: Time It Takes to Cash in Annuities

Annuities are long-term investments that can provide a consistent income as you head into retirement. However, the time it takes to access the funds may depend on several factors, including the type of annuity, the annuity holder’s age, the surrender period, and the respective insurer’s cash-in process. 

Remember that cashing in early before turning 59 ½ years will trigger punitive penalties, such as the IRS tax penalties and surrender charges. 

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