Strategy 82 of 107 · new for the five-year plan
Use an annuity's yearly free-withdrawal amount
What it is
Many deferred annuities let you take a share of the account value each year, often 10%, without a surrender charge.
Steps
- Many deferred annuities let you take a share of the account value each year, often 10%, without a surrender charge.
- Gains come out first and are taxed; before 59½ a 10% additional tax applies.
- Send the after-tax amount to principal. Never pledge the annuity as collateral.
Repeat: Every year.
Measure: After-tax withdrawal (enter as a yearly amount).
Try it in the calculator Enter its amount in "Yearly amount to principal". Add a payoff goal of 5 years to see what is still needed.
Risks
- Taking money out can reduce income riders and what is left to heirs.
- Check the contract's surrender schedule first.
Who it fits
Grandmas and grandpas (62 and over), Higher net worth, with assets, Married couples
Needs
Owns a deferred annuity
How predictable
Most predictable: once in place, the payoff date is arithmetic
A worked example (hypothetical, not guaranteed)
Picture a hypothetical household (grandmas and grandpas (62 and over)). They owe $300,000 at 6.5% with 30 years left. The required payment is $1,896 a month, and that payment, which comes from income, never changes in this example.
They follow the steps: many deferred annuities let you take a share of the account value each year, often 10%, without a surrender charge.
Suppose it brings $6,000 once a year on principal. The loan would be paid off in 17 years 11 months instead of 30 years, saving about $173,949 in interest. To finish in five years, they would still need about $3,488 a month more from other strategies. That is why the five-year sequences stack several at once.
The amount above is chosen only to show the arithmetic. It is not an estimate of what this strategy will produce for anyone. Put real numbers from the fact finder into the calculator.
Sequences that use it
- Five-year sprint: 73 and over: Money that must come out anyway, a yearly free withdrawal, the tax saved by giving directly, and a policy no longer needed.
Sources and more information
Where to get help
Related strategies
- 81. 73 and over: send required distributions you don't need to principal
- 83. Find lost pensions and old retirement accounts
- 80. A parent's or grandparent's large gift, using their lifetime exemption
- 84. Claim refunds and settlements you are owed
- 78. Sell digital assets held outside retirement accounts
- 77. Sell some future structured settlement payments, only with court approval