6 strategic ways to get money out of an annuity

From withdrawals to exchanges, there are a few key ways you can access funds from an annuity. Rene Mansi/Getty Images

Annuities have become an increasingly popular retirement tool, with total annuity sales hitting $119.2 billion in the second quarter of 2025, an uptick of about 8% compared to Q2 2024, according to the latest data from LIMRA. That increase in sales was driven, at least in part, by more people turning to annuities to secure a guaranteed retirement income in today's uncertain economy. Unlike stocks or savings accounts, annuities provide structured payouts for life, which can make them attractive to those concerned about outliving their nest egg.

But while the security of predictable payments is a big selling point, annuities can also feel restrictive when you need access to your money. After all, these specialized insurance products are built for the long haul, and taking money out of an annuity isn't always a straightforward process. Still, unexpected emergencies, large expenses or even a change in financial goals might lead you to wonder how exactly you can take money out of an annuity without derailing your retirement plan. 

So, how do you do that? The answer depends in large part on the contract type, your age and the strategies you choose. Below, we'll examine six strategic ways to get money out of annuity worth knowing.

Find out how an annuity could be a smart addition to your retirement portfolio.

7 strategic ways to get money out of an annuity

Annuities are not universally accessible when it comes to withdrawing cash. Most contracts provide multiple pathways, each with its own trade-offs in terms of penalties, taxes and long-term financial implications. Here are some of the most common options to consider if you need to take this route:

Wait for the annuity payments to start

The simplest, and often the most cost-effective, way to access your annuity money is to wait until your scheduled distribution phase begins. At that point, the insurer will start sending you monthly, quarterly or annual payments based on your contract. These payouts are guaranteed for a set period or for life, and you won't face extra penalties for receiving them. The trade-off, of course, is that you can't get a lump sum upfront, which could be an issue, depending on what you're planning to use the funds for.

Learn more about the benefits of using an annuity to plan for retirement.

Request a partial withdrawal

Many annuity contracts will allow you to withdraw a portion of your funds before the official payout phase. Insurers typically let you withdraw up to 10% of the account value per year without surrender charges. This option gives you flexibility when you need access to cash, but you'll still owe income tax on the withdrawn amount. And, if you're under 59½, the Internal Revenue Service (IRS) may tack on a 10% early withdrawal penalty, too.

Take out a loan against it

Some annuities, especially those tied to retirement accounts, may allow you to borrow against the value of the annuity. A loan like this can be less disruptive than a withdrawal since you're essentially borrowing from yourself and paying it back with interest. However, rules for borrowing from an annuity vary widely depending on the type of annuity, and failure to repay the loan could result in the IRS treating it as taxable income.

Surrender the contract for its cash value

If you need access to a large lump sum, you could choose to surrender your annuity entirely. This means canceling the contract and receiving the accumulated value minus any surrender charges. The downside is steep, though: Annuity surrender fees can run high, especially in the first years of a contract, and you'll owe taxes on the taxable portion. Still, for those who no longer want the annuity, this option provides access to the entire balance.

Use a 1035 exchange to move the funds to a new contract

A Section 1035 exchange allows you to transfer funds from one annuity to another (or to certain types of life insurance policies) without triggering an immediate tax bill. This strategy can be useful if you want better annuity features, lower fees or more favorable terms but don't need to borrow or access the money for other uses. While you won't be accessing cash directly, it's a way to reposition your money without surrendering and starting from scratch.

Use hardship provisions or special riders to access funds

Some annuity contracts include hardship provisions or riders that let you access funds without the usual penalties if you face certain situations, such as terminal illness, long-term care needs or disability. These features vary by insurer, though, so check your specific annuity contract for details.

Sell your future payments to a third party

Annuity holders also have the option to sell their right to future payments to a factoring company in exchange for a lump sum today. This is known as a structured settlement factoring transaction. While this route can provide immediate liquidity, it often comes at a steep discount, meaning you'll likely receive far less than the total value of your future payouts. Because of the potential downsides, this option is typically seen as a last resort.

The bottom line

Annuities are built to provide long-term security, not short-term liquidity. Still, life doesn't always go according to plan, and there are multiple strategies to access your money if needed. The key to determining the best route is weighing the costs, like taxes, penalties and reduced future income, against the benefit of having cash in hand today. That way, you can ensure that you're choosing the option that preserves as much of your long-term financial stability as possible while still addressing your immediate needs.