Can I get out of my annuity?

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Q. I have an annuity worth about $70,000. I am retired and I need the money. They say I would get $125 a month for 10 years. This isn’t enough to help me. Can I break the annuity contract to get my money back?
— Short on cash

A. Without seeing your actual annuity contract, we’re going to have to be a little general here.

When choosing between annuitizing and surrendering your annuity contract, there are many options to consider.

We’re glad to see you’re not jumping to make a decision without asking questions.

Also know that owning an annuity contract does not mean that you are locked into it forever, said Michael Green, a certified financial planner with Wechter Feldman Wealth Management in Parsippany.

That said, a payout of $125 per month for 10 years seems extremely low for a contract of this size, he said.

He said there are several types of annuity payouts available to an annuitant, and it sounds like you were provided only one option.

Some of the payout options that could be available to you include: “life,” “period certain,” “life with period certain” and “joint life and survivor.”

Green explained what they all mean.

A “life” payout will ensure that you will not outlive your payments.

“Period certain” guarantees that you will be paid for a certain number of years, usually 10, 15, or 20.

“Life with period certain” guarantees a payout for the number of years chosen for the period certain.

“If the annuitant dies during this period, the payments will continue for the remainder of the period certain,” he said. “If the annuitant lives beyond the period certain, then payouts will continue for their lifetime.”

“Joint life and survivor” will pay out the annuity over the lifetimes of two people, he said.

“Should you decide to annuitize, your selection of a payout option is final,” Green said. “Therefore, you should confirm that these payout amounts are accurately quoted before making any decisions. The more risk the insurance company takes, the lower your payout will be.”

If you have considered all payout options and determined that none of them are in line with your financial goals, you may also consider liquidating your annuity to receive a lump sum distribution, Green said.

“It is important to keep in mind, however, that there may be additional tax consequences associated with surrendering your contract,” he said. “If the surrender period for your policy has already expired, you can liquidate or `break’ the annuity contract with no penalty.”

But the taxation and flexibility of your withdrawal options depend on the classification of your annuity. Specifically, is the annuity qualified or non-qualified?

Green said a qualified annuity may be eligible for a tax deduction when purchased, but would be subject to income tax upon distribution. A non-qualified annuity is funded with after-tax dollars, and when withdrawals are taken, only the earnings are taxable.

In short, you have options — but it can be easy to choose the wrong one.

And, Green said, it is extremely important to know what you are getting into before signing on the dotted line.

“When making an irreversible decision, such as the type of annuity payout to receive, be sure to explore any potential unintended consequences,” he said. “For example, it is possible that you could unknowingly lose the death benefit of your policy if the wrong choice is made.”

He said you should think about working with a qualified professional before making your final decision.

“The best option is the one that’s right for you — not the insurance company,” Green said.

Email your questions to moc.p1513477700leHye1513477700noMJN1513477700@ksA1513477700.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.