Annuity Surrender Charges Explained

What Are Surrender Charges?

When you buy an annuity, you agree to keep your money deposited for a set number of years (typically 3-10). If you withdraw more than the penalty-free amount during this period, you pay a surrender charge — a percentage of the amount withdrawn.

Surrender charges typically start at 8-10% in year one and decrease by about 1% each year until they reach 0%. For example, a 7-year surrender schedule might look like: 7%, 6%, 5%, 4%, 3%, 2%, 1%, 0%.

The Penalty-Free Withdrawal

Most annuities allow you to withdraw up to 10% of your account value each year without surrender charges. This is called the penalty-free withdrawal provision. It provides liquidity for emergencies or supplemental income while your money continues to grow.

Why Surrender Charges Exist

Insurance companies use your deposit to invest in long-term bonds and other fixed-income instruments. Surrender charges protect them (and you) from having to sell these investments at a loss if everyone withdraws early. In exchange for this commitment, they can offer you higher guaranteed rates.

How to Avoid Surrender Charges

Only deposit money you won't need for the surrender period. Use the 10% annual penalty-free withdrawal if you need access. Create an annuity ladder with staggered maturity dates for regular liquidity. At ACM, we always match the surrender period to your timeline — we never recommend locking up money you'll need sooner.