Are Annuities Really Illiquid?
August 14, 2019 by Scott Stolz
Annuities are typically considered illiquid, long-term investments. In general, I don’t think anyone would disagree with that view. After all, annuities are designed to be lifetime contracts. However, it would be wrong to assume all annuities are created equal when it comes to liquidity. Instead, it’s important to recognize the differences.
Why Are Annuities Considered Illiquid?
It’s not hard to read statements from both the Financial Industry Regulatory Authority and the Securities and Exchange Commission and conclude that they view annuities as illiquid, long-term investments. In multiple variable and indexed annuity Investor Alerts, both regulatory bodies list liquidity as a consideration and emphasize the long-term nature of these investments.
In addition to the regulators’ views on annuities, these considerations make annuities illiquid too:
- Commission-based annuities with surrender charges will carry a cost to get out of the contract in the first 5 to 10 years.
- Nonqualified annuities will carry tax consequences if liquidated early.
- Optional living and death benefits may be too valuable to surrender the policy.
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