Annuitization
Candlefocus EditorThe annuity is set up by investing a sum of money into the annuity plan, such as a cash payment or the proceeds from the sale of a home. The investment made in the annuity will accrue over time in the form of interest. The amount of annuity payments will depend on the amount invested and the current interest rate.
Upon annuitization, the funds that were invested into the annuity can be paid out as a lump sum or as a series of periodic payments over time. If a lump sum is chosen, the entire amount of the annuity account is paid out right away. If periodic payments are chosen, the annuity payments are paid out on a regular basis, such as monthly or quarterly, regardless of the annuitant’s age or health.
When an annuitization is chosen to provide a stream of income for the annuitant or couple, the annuity payments may only be made to the annuitant or to the annuitant and a surviving spouse in a joint life arrangement. In this arrangement, payments continue as long as either one of the two parties is still alive. The surviving spouse will continue to receive the payments following the death of the other spouse.
Additionally, when an annuitization is chosen, annuitants can arrange for beneficiaries to receive a portion of the annuity balance upon their death. This portion of the annuity is known as a death benefit and can be paid out in a lump sum or as a series of periodic payments.
The annuitization of an annuity investment is an important part of retirement planning and should not be taken lightly. It is important for annuitants to work with a financial advisor to determine the best course of action for their specific situation, as some annuity investments may have different rules and regulations regarding annuitization.