What Is the Annuitization Phase?
The annuitization phase of an annuity alludes to the period when the owner of a annuity — called the annuitant — starts to receive payments from the annuity investment. Annuities are financial products that pay the beneficiary a surge of payments throughout some undefined time frame. The annuitization phase is additionally called the annuity phase and the payout phase.
This can measure up to the period when money is being invested or kept into the annuity, which is called the accumulation phase.
Eventually, the annuitization phase starts, or the beginning of payouts to the annuitant. The size of the payments and the period of time wherein the payouts are made in the annuitization phase differs, contingent upon the type of annuity and its value.
Understanding the Annuitization Phase
After annuities move from the accumulation phase to the annuitization phase, they commonly give periodic payments to the annuitant. The more money invested in the annuity, the more will be received when the annuity is paid out. The payout period is the time when the method of payment becomes an integral factor: the annuitization method, the systematic withdrawal schedule, or the lump-sum payment. The annuitization payout method accompanies the accompanying options:
The life option normally gives the highest payout on the grounds that the regularly scheduled payment is calculated founded exclusively on the life of the annuitant. This option turns out a revenue stream forever, which is an effective hedge against outlasting your retirement income.
The joint-life payment option permits you to proceed with the payment to your spouse upon your death. The regularly scheduled payment is lower than that of the life option on the grounds that the calculation depends on the life expectancy of the two spouses. The life with guaranteed term option gives you an income stream forever (like the life option), so it pays you however long you live.
With the period certain option, the value of your annuity is paid out over a defined period of time fitting your personal preference — like 10, 15, or 20 years. Would it be a good idea for you choose a 15-year period and bite the dust inside the initial 10 years, the contract is guaranteed to pay your beneficiary for the leftover five years.
The systematic withdrawal schedule is a method of withdrawing funds from an annuity account in determined sums for a predetermined payment frequency. The annuitant isn't guaranteed lifelong payments since they're inside the standard annuitization method. With the systematic withdrawal schedule, the annuitant decides rather to pull out funds from their account until it is discharged, bearing the risk that the funds become drained before the annuitant bites the dust.
A lump-sum payment is a one-time payment for the value of an asset, for example, a annuity or another retirement vehicle. A lump-sum payment is normally taken in lieu of recurring payments distributed over a specific period. The value of a lump-sum payment is generally not exactly the sum of all payments that you would somehow receive in light of the fact that the party paying the lump-sum payment is being approached to give a bigger number of funds upfront than it in any case would have been required to.
- There are various methods for taking payments from an annuity, which incorporate taking a lump-sum payment or structured distributions.
- The annuitization phase is the point at which the annuity starts making payouts.
- Before settling on any choice in regards to annuities, examining all suitable options with a retirement professional is important.