The accumulation phase is the first stage of your annuity's lifecycle, during which your focus is on building wealth for future income needs. This phase can last anywhere from a few years to several decades, depending on when you purchase the annuity and when you plan to start receiving income.
During the accumulation phase:
- You may make one lump-sum payment or multiple contributions
- Your money grows tax-deferred, meaning no annual taxes on gains
- Interest credits depend on your annuity type (fixed rate, index-linked, or variable)
- You typically have limited access to funds (subject to free withdrawal provisions)
The power of tax-deferred compounding during the accumulation phase can be substantial. For example, $100,000 earning 5% annually would grow to approximately $163,000 over 10 years in a taxable account (assuming 22% tax bracket), but could reach approximately $163,000 in an annuity with no annual tax drag.
The accumulation phase ends when you either begin taking systematic withdrawals or convert the contract to an income stream through annuitization.
Related Terms
Get Personalized Annuity Guidance
Tell us a bit about yourself and a local specialist will reach out to help.