What might limited liquidity in annuities imply?

Limited liquidity in annuities typically implies that there are restrictions on accessing funds without incurring penalties. This is particularly significant because annuities are designed to be long-term investment vehicles, and many contracts impose surrender charges or penalties if the investor withdraws funds before a specified period. The potential for early withdrawal penalties serves as a deterrent to accessing funds and encourages investors to keep their money in the annuity for the agreed term. Therefore, understanding this aspect is crucial for investors when evaluating the suitability of an annuity for their financial goals, as it highlights the need for careful planning regarding their cash flow needs.