Annuitization

The reception of monthly payments from an annuity after an accumulation period. Depending on the type of annuity, one may annuitize payments for a period of time or for the remainder of one's life.

Annuitization.

Annuitization means that you convert part or all of the money in a qualified retirement plan or nonqualified annuity contract into a stream of regular income payments, either for your lifetime or the lifetimes of you and your joint annuitant.

Once you choose to annuitize, the payment schedule and the amount is generally fixed and can't be altered.

If you have a qualified retirement plan, such as a 401(k), you generally have three major options when you retire. You can annuitize, roll over the account balance to an IRA, or take the money all at once as a lump sum distribution.

If you have a nonqualified deferred annuity, you have a choice of annuitizing, taking a lump sum, setting up a systematic withdrawal plan, or arranging some other payout method that the contract allows.

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References in periodicals archive

Annuities are created and sold by financial institutions, which accept and invest funds from individuals and then, upon annuitization, issue a stream of payments at a later point in time.

Annuities as retirement income

We’ve made many moves to de-risk; made lump-sum payouts to some terminated-vested participants; utilized LDI [liability-driven investing] based on improvements in the plans’ funded status; reviewed funding strategies to reduce PBGC [Pension Benefit Guaranty Corporation] premiums; and currently we are reviewing options for annuitization of some retiree benefits.”

Retirement With Dignity

Wincek's experience includes key roles in a number of well-known pension de-risking annuitization transactions, as well as many smaller annuitization transactions.

Mark Wincek, Partner, Kilpatrick Townsend & Stockton LLP to Speak at TKG's Practical Tips and Strategies in Avoiding Pitfalls in Pension Plan De-Risking Live Webcast

Deferred Annuities: A type of long-term savings product that allows assets to grow tax-deferred until annuitization. This product category includes:

Annuity Products

More specifically, regulators should: (1) encourage desirable forms of de-risking by establishing regulatory safe harbors; (2) require a battery of procedural safeguards for annuitization transactions; (3) require improved disclosures for cash buyouts; and (4) limit cash buyouts when beneficiaries are not likely to meaningfully understand the potentially adverse consequences of trading a pension for cash.

Pension de-risking

* John Beshears, David Laibson, and Brigitte Madrian, Harvard University and NBER; James Choi, Yale University and NBER; and Stephen Zeldes, Columbia University and NBER, "What Makes Annuitization More Appealing?" (NBER Working Paper No.

Personal Retirement Challenges