Watch the video below to get a better understanding of liquidity in your investments.



What is liquidity? By definition, liquidity is an asset that can be easily converted to cash.

Let’s take a look at some various, common assets owned by Savers and get a feel for how liquid these assets are.


You may be surprised to see 401(k) plans on the list here. But the reality is, there are many penalties and fees that come with accessing your money in the 401(k) plan. Now these plans aren’t entirely bad. It just gets dicey when all your assets are dumped into one place with the ability to collect a massive TaxTumor®. Consider any access under age 59.5 – you’ll be able to take a loan against the plan, but in order to take a distribution, you’ll be hit with an additional 10% excise tax on top of income taxes.

Stock, bonds, and mutual funds may seem like liquid assets because, after all, you can pull it out whenever you want. While you may be able to pull it out whenever you want, that does not mean you will receive the same amount that you originally put in due to market or interest rate risk.

In our industry, some investments are considered ‘cash equivalents’, meaning that they are practically as accessible to the owner as cold-hard cash. Take for instance money at the bank – checking, savings, CDs (at maturity), Money Market accounts. Even home equity lines of credit (HELOC) are very accessible on a short-notice basis.

When it comes to liquidity, annuities often get a bad rap. Most people believe that after you dump your money into an annuity, you can’t touch it for the next 10+ years due to surrender charges. While annuities are not liquid products, Savers do have access (quickly) to 10% penalty free withdrawals (PFW) after the first contract year. Some companies allow for up to 10% of the contract value and others allow 10% of the initial premium invested.

Knowing which of your assets are liquid and understanding how best to utilize them is crucial to having a WorryFree Retirement®.


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