Annuitization Method

Annuitization Method

A type of annuity distribution structure that gives the annuitant periodic income payments for the rest of his or her life, or a specified period of time. This is different than the systematic withdrawal method, with which the annuitant chooses the amount he or she would like to receive each month, which he or she receives until the amount in the account runs out.

Notes:

Upon annuitization of his or her account, the annuitant effectively converts the entire savings in the account into an income stream. If he or she choses the life option, the income stream is guaranteed by the insurance company to last the rest of the annuitant's life, even if he or she should live much longer than originally expected. Of course, the risk in chosing the life option is that, should the annuitant die sooner than expected, he or she will not receive all of value of the annuity account - the insurance company gets to keep the remainder of the account upon the annuitant's death. Most annuities, however, offer period-certain options or spousal coverage, which can reduce the risk of the annuitant's funds not being sufficiently paid out because of an earlier-than-expected death.

See also: Accumulation Phase, Annuitant, Annuity, Deferred Annuity, Fixed Annuity, Life Option, Life With Guaranteed Term, Period Certain, Systematic Withdrawal Schedule, Variable Annuity