Annuitization is an irrevocable decision that converts your annuity's accumulated value into a guaranteed stream of income payments. Unlike systematic withdrawals or income rider payments, annuitization typically means giving up access to your remaining principal in exchange for guaranteed payments.
Common annuitization options include:
- Life Only: Highest payments, but stop completely at death
- Life with 10-Year Period Certain: Payments for life, minimum of 10 years
- Life with 20-Year Period Certain: Payments for life, minimum of 20 years
- Joint Life: Payments continue for both spouses' lifetimes
- Period Certain Only: Payments for a specific number of years regardless of survival
The insurance company calculates your payment based on:
- Your accumulated value at annuitization
- Your age (and spouse's age for joint options)
- Current interest rates
- The payout option you select
- Mortality tables
Many modern annuities with income riders allow you to receive guaranteed lifetime income without annuitizing, preserving access to your account value. This is one reason income riders have become popular alternatives to traditional annuitization.
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