Annuitization Phase

The annuitization phase, also known as the annuity phase, is the period when the annuitant starts to receive payments from the annuity. This period is after the accumulation phase where money is invested into the annuity.

After annuities move from the accumulation phase to the annuitization phase, they typically provide periodic payments to the annuitant. The more that was originally invested into the annuity, the more will be received when the annuity is paid out. This is the time when the method of payment comes into play: The annuitization method, the systematic withdrawal schedule, or the lump-sum payment. The annuitization method comes with the following considerations.

The life option typically provides the highest payout because the monthly payment is calculated based only on the life of the annuitant. This option provides an income stream for life, which is an effective hedge against outliving your retirement income. The joint-life option allows you to continue the payment to your spouse upon your death. The monthly payment is lower than that of the life option because the calculation is based on the life expectancy of both spouses.

With the period certain option, the value of your annuity is paid out over a defined period of time of your choosing, such as 10, 15, or 20 years. Should you elect a 15-year period and die within the first 10 years, the contract is guaranteed to pay your beneficiary for the remaining five years. The life with guaranteed term option gives you an income stream for life (like the life option), so it pays you for as long as you live.

The systematic withdrawal schedule is a method of withdrawing funds from the account in specified amounts for a specified payment frequency. The annuitant is not guaranteed lifelong payments as he or she is with the standard annuitization method. With the systematic withdrawal schedule, the annuitant chooses instead to withdraw funds from his or her account until it is emptied, bearing the risk that the funds become depleted before he or she dies.

 A lump-sum payment is a one-time payment for the value of an asset such as an annuity or another retirement vehicle. A lump sum payment is usually taken in lieu of recurring payments distributed over a period of time. The value of a lump sum payment is generally less than the sum of all payments that you would otherwise receive, since the party paying the lump sum payment is being asked to provide more funds up front than it otherwise would have been required to.