The 6 Payouts of Annuitization

Shawn Plummer

CEO, The Annuity Expert

Annuitization is converting your retirement savings into a guaranteed stream of annuity payments for a fixed period of time, the rest of your life, or both.  We’ll go over the various payout options you can choose when annuitizing your annuity contract in this guide.

The first thing to know is the option to annuitize an annuity is in just about every contract. 

The single premium immediate annuity, two-tiered annuity, and the structured settlement are the only 3 contract types that force you to annuitize your retirement savings. The annuity settlement option in structured settlements is typically different from standard annuitized payments. For example, the payouts can increase or decrease in the future versus a level payout that does not change.

The 4th possible income annuity contract that requires annuitization is the Deferred Income Annuity. Still, in most products, one can cancel the contract before annuitizing, so there’s no forced income.

Secondly, you should know is once you annuitize your contract, there’s no going back. 

The conversion is irrevocable, which means you can’t cancel the contract or get your money back (in most cases).

Thirdly, income riders or Guaranteed Lifetime Withdrawal Benefits are not a form of annuitization. You can choose an income rider if you do not want to annuitize the annuity and still create a guaranteed income for life.

So let’s go over your options below and check here for annuities that require you to annuitize your contract.

Annuitization Payout Options

Technically there are 7 types of annuitization payout options, but they can vary from product to product. Below are the 7 types to help you make a better decision.

Fixed Period of Time (Period Certain Annuity)

What is the annuitization period? “Annuity Certain” or “Annuity Period Certain” is when payments are distributed to you for a fixed period of time. 

In most cases, you can choose a period ranging from 5 years to 30 years with a period certain annuity.

If you die before the end of the fixed period, the payments continue to pay your designated beneficiary until the period is up.

Because annuitization rates are low, you’re basically paying yourself back over time with a little bit of interest, which is currently around 1.25%.

You can find period certain annuities here.

Single Lifetime Income (Straight Life Annuity)

An individual who purchases a single-life annuity is given protection against running out of money during their lifetime. Payments from a straight life annuity are distributed to you for the rest of your life until the day you die, guaranteed. 

Typically there is no death benefit to heirs. 

The life-only annuity payout usually distributes the highest income out of all annuitizations.

You can find single-life annuities here.

Joint and Survivor (The Couples Annuity)

Payments are made to you for the rest of your life until the day you die, guaranteed.  

When you die, the surviving spouse will continue to receive annuity payments for the rest of their life as well.

One can choose a reduction in payments (50% to 100%) for the surviving spouse in exchange for a higher annuity payment upfront.

Once the surviving spouse dies, there is no death benefit typically.

You can find joint and survivor annuities here.

Lifetime Income with a Guaranteed Period (Life Annuity with Period Certain Annuity)

With a straight life annuity with a period certain, your annuity payments are paid to you until the day you pass away, with a guaranteed period of time that acts as a backup plan in case of premature death.

If one of the annuitants (you) dies before the guaranteed period of time expires, payments continue to pay your designated beneficiary until the period has expired.

Consider this as a hybrid payout of the Single Life Only Annuity and the Period Certain. This payout option can also be applied to a Joint and Survivor payout as well.

You can find life annuities with a period certain here.

Lifetime with Cash Refund (Refund Annuity)

The annuitant will receive payments for the rest of their life until the day they die.

If the annuitant (you) dies before receiving your original investment amount, the difference is paid to the designated beneficiary in a lump sum.

Sometimes called a “Cash Annuity.”

Lifetime with Installment Refund

The installment refund annuity payments will be distributed for the rest of the annuitant’s life.

If the annuitant dies before receiving the original investment amount back, the difference is paid to the designated beneficiary over installments until the original investment is paid back.

Also called an “Installment Refund Annuity” or “refund life settlement option.”


Most annuitizations allow you to elect an optional Cost of Living Adjustment (COLA) to your annuity payments.

The payments will start lower than most payments but will increase each year, mimicking inflation.

In most cases, you get to choose how much of an increase you receive each year.

Annuities That Require Annuitization

These annuities require the plan to be annuitized into an irrevocable stream of annuity payments.

Tax Advantages

Nonqualified Annuities

Since nonqualified annuities are purchased with “after taxed” money, only the interest portion of your annuity payment is taxable.

Under current tax law, part of each annuity payment you receive is a return on your original principal, which means part of your annuity payment will be taxed, and the other part not.

Qualified Annuities

Generally, payments that you receive are fully taxable because the funds have not been taxed yet.  

Since annuity payments will be distributed to you over time, you spread out the tax liability over time, too (instead of a lump sum).

Deferring your annuity payments (Not Immediate annuities) over time may lead you into a lower tax bracket when you start collecting your annuity payments.

The Cons

Annuitized distribution is irrevocable, which means once you “turn on” the income, you can not “turn off” the income.

Interest earned is ridiculously low for what you get.

Consider a deferred annuity with a lifetime income rider instead of annuitization. There are similar results, more flexibility, better death benefit, and helps pay for long-term care costs.

Annuities with Income Riders

These annuities offer an income rider to generate an income for life with flexibility.

Annuitization At a glance

Fixed Index
Principal ProtectionNoYesYesYesYesNo
Access To PrincipalYesYesYesNoNoYes
Tax-Deferred GrowthYesYesYesNoNoYes
Guaranteed GrowthNoYesYesNoNoNo
Guaranteed IncomeYesYesYesYesYesYes
Inflation ProtectionYesYesNoYesYesYes
Death BenefitYesYesYesYes/NoYes/NoYes
Long-Term Care HelpYesYesYesNoNoYes

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At The Annuity Expert, we strive to help you make confident financial decisions regarding annuities. Content provided is created by an independent licensed financial professional.

The Annuity Expert is an online insurance agency that provides the widest variety of annuities in the United States. When you buy an annuity directly from us, we receive a predetermined commission from the insurance company (not you). While your annuity is active, clients are not charged any servicing or management fees. Learn more.


Why should I annuitize?

You’re guaranteeing an income stream for the rest of your life or a fixed period of time. One should consider annuitization as adding an extra layer of retirement income complimenting Social Security Income.

If an annuitant dies before annuitization occurs, what will the beneficiary receive?

Typically the annuity’s account value will be distributed to the designated beneficiary in a lump sump sum. With that said, there are a few annuity contracts that will distribute the annuity’s value over a fixed period of time.

Can I change my mind after annuitizing?

No. The decision to annuitize the annuity is final. You can not switch your annuity payment option either. In most cases, you will not be able to withdraw additional funds from your annuity either. Always have additional funds that are liquid in case of an emergency.

What is the annuitization period?

The annuitization period is the period of time an annuity distributes a series of payments to the contract owner. The annuitization period begins once the annuity owner has received the first payment from the annuity.

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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