What Is Annuitization? Definition

Why it matters

Annuitization is usually an irrevocable choice, so the owner generally gives up access to the lump sum. In return, the insurer promises payments that can last for life. The amount depends on the account value, age, payout option, and rates when payments start. Options include life only, period certain, and joint and survivor. Many owners choose not to annuitize and take withdrawals instead. Taxes apply to the earnings part of each payment.

Source: investor.gov

Where we use this term

Fixed vs fixed index annuity: how do they work and who do they fit?

Related terms

Annuity: An annuity is a contract with an insurance company in which you pay a lump sum or a series of payments. In return, the insurer agrees to make payments to you, either right away or at a future date.
Single Premium Immediate Annuity (SPIA): A single premium immediate annuity (SPIA) is an annuity bought with one lump sum that begins paying income right away, usually within a year. Payments can last for life or for a set period.
Deferred Annuity: A deferred annuity is an annuity contract that delays payments until a future date chosen by the owner. Until then, the money can grow during an accumulation phase, tax deferred.
Accumulation Phase: The accumulation phase is the period in a deferred annuity when the owner adds money and the value grows, before income payments begin. It ends when the owner takes withdrawals or starts annuity payments.
Income Rider: An income rider is an optional annuity feature that guarantees a stream of lifetime income, often based on an income base that grows at a stated rate. It usually costs an annual fee.

All 241 terms

Why it matters

Where we use this term

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