Updated: Oct 15, 2020
That might be an odd looking question, but it's very apt.
One of the selling points of various deferred annuities (annuities where you wait to use them for regular annual income), is that you can access 10% of your annuity every year.
But that 10% amount may change each and ever year!
How can we tell? It depends what the annuity contract language says.
(Note: We are not looking at lifetime income benefit riders in this as that amount would be far less and guaranteed for that amount for the rest of your life - such as 5% of the annuity income value at age 65. We're looking at a simpler annuity WITHOUT that lifetime income benefit rider.)
If the contract says "10% of the annual or anniversary value", your annuity 10% withdrawals over time *may* look something like this:
Year 1: $100,000 x 10% withdrawal = $10,000 withdrawal and $90,000 remaining (0% growth)
Year 2: $90,000 x 10% withdrawal = $9,000 withdrawal and $81,000 remaining (0% growth)
Year 3: $81,000 x 10% withdrawal = $8,100 withdrawal and $72,900 remaining (0% growth).
So these contracts aren't *bad*. It just means that you can access funds each year, but it won't be a LEVEL amount. So you would want to consider accessing your contract only if needed, not necessarily for a planned level liquidation over time.
If you withdraw MORE than the annual 10% to have a level amount taken each year, that excess amount would be subject to a surrender charge.
I've found that most annuity contracts work like this.
There are contracts (just a few) that allow you to withdrawal "10% of the initial contract value" or even "10% of the higher of either the initial contract value OR anniversary value"... that may look more like this:
Year 1: $100,000 x 10% initial contract value withdrawal = $10,000 and $90,000 remaining (0% growth)
Year 2: $90,000 x 10% initial contract value withdrawal = $10,000 and $80,000 remaining (0% growth)
Year 3: $80,000 x 10% initial contract value withdrawal = $10,000 and $70,000 remaining (0% growth).
These kinds of annuity contracts allow you to plan on a year-to-year basis to access your money with more consistency and without penalty.
Just a quick note: I'm just talking about accessing your annuity contract on a regular basis and I'm only talking about individual annuity contract language, and I'm not talking about growth, taxation, or penalties - which should be in the total conversation and included in the entire recommendation to be coordinated with your total situation.
So, if you're wondering "can I access my annuity?" and your agent says "Yes, you can access 10% every year"... ask more questions so you can fully understand what that could mean on a year-by-year basis. It's not that the 10% of anniversary values is bad... only that you should know what that really means.