Annuitization

What Does Annuitization Mean?

Annuitization is the process of converting an annuity into a series of periodic future payments. An annuity has two primary stages: the accumulation stage and the payout stage. During the accumulation stage, funds remain in the annuity contract, and the investor does not receive any payments. At any time, the investor can choose to begin receiving payments, transitioning the annuity into the payout stage. Annuitization facilitates this conversion from accumulation to payout. Annuities are typically sold by life insurance companies, so the carrier you buy from matters as much as the contract terms, and many of the same firms appear when shopping the wider life insurance market.

Insuranceopedia Explains Annuitization

The annuity owner has several options for structuring payments. For instance, they can select the duration of the payout period and the frequency of payments, such as monthly, quarterly, or annually. Alternatively, they may choose to receive the entire amount as a lump sum. Because annuitization is most often used to generate retirement income, retirees comparing life insurance options for seniors sometimes look at annuities alongside whole life policies that build cash value. However, once an investor opts for annuitization, the decision is typically irreversible, and returning to the accumulation stage would likely require entering into a new annuity contract. How much income an annuity actually produces during the payout stage depends on how much was paid in during accumulation, which is one reason people weigh the average cost of life insurance products before deciding how to fund retirement.