Annuity Withdrawals

Shawn Plummer

CEO, The Annuity Expert

Annuity withdrawals are the contract provision that offers liquidity and allows the owner to regularly withdraw money before a deferred annuity contract expires.

Deferred annuities include the

Liquidity is another common misconception with annuities: you can’t access any of your funds from your annuity account.

This is not true.

This guide will answer the following questions:

  • Can you take money out of an annuity?
  • How to withdraw money from an annuity?
  • How to get money out of an annuity without a penalty.
  • When can you withdraw from the annuity without a penalty?
  • Can I cash out an annuity?
  • Can I withdraw money from my retirement annuity?
  • Annuitization vs. Withdrawal

Outside of penalty-free liquidity, an owner can cash out an annuity with or without a penalty, depending on the annuity’s surrender charge schedule.

Here is a list of annuities that offer extra liquidity.

Annuities with Extra Liquidity

Research annuities that offer extra liquidity so you have more access to your retirement savings, then request a quote.

Annuity Withdrawals At A Glance

Fixed Index
Principal ProtectionNoYesYesYesYes
Access To PrincipalYesYesYesNoNo
Control Over MoneyYesYesYesNoNo
Tax-Deferred GrowthYesYesYesNoNo
Guaranteed GrowthNoYesYesNoNo
Guaranteed IncomeYesYesYesYesYes
Inflation ProtectionYesYesNoYesYes
Death BenefitYesYesYesYes/NoYes/No
Long-Term Care HelpYesYesYesNoNo

Can you take your money out of an annuity without a penalty?

Most annuities will allow an annuity owner to withdraw money out of their annuity. However, the following annuities do not allow for a withdrawal:

Contracts That Do Not Allow Annuity Withdrawals

Annuity Withdrawals Without a Penalty

  • Penalty-Free Withdrawals
  • Accumulating Penalty-Free Withdrawals
  • Return of Premium
  • Systematic Withdrawals
  • Health-Related Waivers
  • Commutation Withdrawal Benefit
  • Annuity Loans

Penalty-Free Withdrawal

A penalty-free withdrawal in a deferred annuity is a specific percentage an annuity owner can pocket from the annuity savings without incurring a withdrawal charge. The withdrawal percentage varies by contract, but 10% of the total annuity value seems to be the standard amount of income liquidated each year.

Most deferred annuities offer penalty-free withdrawals that are friendly to Required Minimum Distributions.

Penalty-Free Withdrawal of Original Premium

Annuity withdrawal rules typically offer 2 types of penalty-free withdrawals:

  • Original Premium
  • Current Account Value

A penalty-free withdrawal of the original premium allows the annuity owner to withdraw a certain percentage based on the original investment.


You have purchased a $100,000 annuity. There is a 10% penalty-free withdrawal provision of the original premium which is $10,000. This means every year, you can pocket up to $10,000 in annuity withdrawals without a surrender charge. It’s predictable.

A Free Withdrawal of the Account Value

A penalty-free withdrawal of the account value allows the annuity owners to withdrawal a certain percentage based on the current accumulation value.


  • You have purchased a $100,000 annuity. Let’s say there is no growth nor loss in this policy.  Account balances stay the same.
  • There is a 10% penalty-free withdrawal provision of the current account value.
  • In Year 1, you can withdraw up to $10,000. You withdraw the amount of $10,000.
  • Your current contract value is now worth $90,000.  You want to make another withdrawal next year. In year 2, you can withdrawal up to $9,000.
  • Why?
  • Because the current account value is now $90,000, and you can withdrawal up to 10% of that amount.

Original Premium Vs. Account Value

If you plan to withdraw from your retirement savings every year during the deferral period, 10% of the original premium is better because of the predictability and the more retirement income you can spend.

If you plan to withdrawal now and again during the deferral period, 10% of the account value might be a better option because your account value could go up. 

The higher the account balance goes up, the higher the withdrawal amount you will have the following year.

Systematic Annuity Withdrawals

Systematic annuity withdrawals from an annuity are the automated withdrawal of periodic income payments (via penalty-free withdrawals) throughout the year instead of pocketing the maximum dollar amount once a year. 

A contract owner can make withdrawal annuity income payments systematically via:

  • monthly payments
  • quarterly payments
  • semi-annual payments

If you think you need more deferred income than the allotted amount, check out the accumulating penalty-free withdrawals feature.


You’ve purchased a traditional fixed annuity, and you want a monthly income from the interest earned. Contract owners can set up automatic monthly payments (via annuity forms) to be withdrawn and deposited into your checking or savings account.

Accumulating Penalty-Free Withdrawals

This is a rare feature in annuity products.  

The idea is if you don’t take your allotted withdrawal amount in a given year, it “rolls over” into the next year, providing more liquidity from the account balance the following year.  

Think “cell phone minutes.”  

What’s so good about accumulating withdrawals is that it helps protect annuity owners in case of emergencies or, frankly, if your retirement account doesn’t perform well during the accumulation phase.  


  • Your annuity allows for 10% of the account value that can be withdrawn penalty-free annually, and it also has the accumulating feature with a maximum of up to 50%.   
  • You don’t withdraw anything in year 1.   
  • Your 10% withdrawal rolls over to year 2, allowing for up to a 20% penalty-free withdrawal.  
  • In year 2, the same situation occurs, and you don’t touch a dime.   
  • That year’s 10% rolls over to year 3, allowing for up to 30% the following year.  
  • Same thing each year during the deferral period until the end of year 5, where you’ve accumulated the maximum limit of a 50% free withdrawal.
  • At that point, you can pocket or transfer 50% of your total contract value without incurring any surrender charges.  
  • What happens after you move 50%? The percentage amount starts over at 10%.     

Return of Premium

The Return of Premium (ROP)  feature in annuities is easy to understand.  

Basically, the annuity rules state that you can get your original premium back minus any withdrawals and fees without penalty during the deferral period you want to cancel or surrender the policy.  

When exercising the Return of Premium feature, the annuity owners must take all the money back or nothing at all. Therefore, there is no partial return of premium.     

Return of Premium vs. Accumulating Withdrawals

If you’re seeking more liquidity but not sure which route is best suited for you, let me provide the pros and cons of each feature.

Return of Premium returns your original investment to you minus any withdrawals and fees.   

If you’re in year 5 of an annuity contract, and you want to receive your money back, all interest earned will go to the insurance company, not you.  

With Accumulating Penalty-Free Withdrawals, you can receive a large portion of your account balance back and still keep your earnings.    

If you’re in year 5 of the contract and only want some of your annuity accounts back, this method might be better for you simply because the previous 5 years won’t be wasted in growing your retirement savings.     

Nursing Home Waivers

Today, most deferred annuities waive all surrender charges if the annuity contract owner enters into a qualified nursing home for a specific consecutive amount of days.  

The nursing home waiver tends to come with the annuity contract at no additional cost.

Terminal Illness Waiver

Today, most deferred annuity contracts waive all surrender charges if the contract owner is diagnosed terminally ill by a physician.  

Terminal illness diagnosed describes that a person will live for the next 12 months or less. 

Annuity Bailout Provision

An Annuity bailout provision in indexed fixed annuities refers to caps, spreads, fees, interest rates, and participation rates renewing throughout the contract period. Basically, if a cap or participation rate renews at a certain level or below, all surrender charges will be waived from the account balance, and the contract owner can move the entire annuity account penalty-free.  


  • You purchase an indexed annuity with a bailout cap of 3%. 
  • You start your retirement account with an annual point to point strategy with a 5% cap. 
  • The following year that 5% cap lowers to a 2.8% cap. 
  • All surrender charges are waived. 
  • You can leave your annuity contract without penalty.

Commutation Withdrawal Benefit

An income annuity (immediate annuity or deferred income annuity) is the annuity type that does not often offer liquidity. These products convert your initial investment into irrevocable annuity payments of retirement income without any cash value.

However, a commutation withdrawal benefit offers annuitized income annuities such as an immediate annuity or deferred income annuity, a one-time emergency withdrawal. Commutation Withdrawal Benefits do not apply to a QLAC nor Medicaid annuities.

Find Out More About Annuity Withdrawals

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Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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