Do I Have To Annuitize My Annuity Income?

Shawn Plummer

CEO, The Annuity Expert

Ah, the world of annuities – a financial term that often feels as complex and mysterious as it sounds. However, it’s simpler than you might think. An annuity is a financial product that can provide a steady income stream, much like a personal pension. But what does it mean to “annuitize” this income stream? What is an “annuitized distribution”? Is it a smart financial move? Let’s demystify these terms and questions one by one, putting you – the reader – at the heart of the equation.

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Why Would I Want Annuity Income?

There are a few reasons why you might want to consider annuity income. First, it can provide you with a steady income stream in retirement. This can be an excellent way to supplement your other retirement income sources and ensure you have enough money to cover your expenses.

Another reason to consider annuity income is to help protect your assets. If you have a lot of money saved, you may be worried about outliving your savings. With an annuity, you can use your savings to purchase an income stream that will last for the rest of your life. This can give you peace of mind knowing that you will have income even if you live a long time.

Should I Annuitize My Annuity

The Misconception About Annuity Income

There is a lot of confusion about how to get income from annuities. For example, people are unsure if they should annuitize or take guaranteed lifetime withdrawals. The truth is that there are many different ways to get income from annuities, and the best way for you will depend on your circumstances.

The best way to figure out what is right for you is to talk to an expert, like The Annuity Expert. We can help you understand the options available and make sure you make the best decision for your needs.


What Are Lifetime Withdrawals?

Lifetime withdrawals are another way to receive payments from your annuity. With lifetime withdrawals, you can take out a certain amount each year for as long as you live. The amount you can withdraw will depend on the terms of your annuity contract.

What’s The Difference Between Annuitizing And Lifetime Withdrawals?

Annuities offer two methods to distribute an income to a policyholder, annuitized annuity payments and lifetime withdrawals . The main difference between annuitizing and lifetime withdrawals is that with annuitizing, you cannot change your mind once you start receiving payments. On the other hand, with lifetime withdrawals, you can take out money each year (up to a specific amount), but you are not committed to taking out a certain amount each year.

Below are the pros and cons between lifetime withdrawals and annuity payments.

Lifetime WithdrawalsAnnuity Payments
Flexibility to start/stop income streamPotential higher payouts
Potential to increase the income amountTax-favored withdrawals on nonqualified annuities
Costs range from no cost to 1.25% annuallyNo additional fees
Potential to earn interestIrrevocable payments
Future income guaranteed todayCan not be surrendered; No refunds
Can be canceledEarns approximately 1% interest annually
Lump-Sum Death BenefitNo liquidity
Help with long-term care costsNo death benefit or series of payments
Standard liquidityCan not help healthcare costs

What Does It Mean to ‘Annuitize’ Your Annuity?

When you annuitize your annuity, you make a significant decision: agreeing to receive payments in exchange for your initial lump-sum investment. Your life expectancy and your invested amount typically determine these payments.

For instance, imagine having a sum of money in a retirement account. To annuitize this sum means to convert it into regular payments over a specific period or over your lifetime – effectively creating a personal pension.

What Happens If You Don’t Annuitize An Annuity?

Not annuitizing an annuity leaves it in its accumulation phase. This means the money in the annuity continues to grow tax-deferred. You could still make withdrawals, but these aren’t fixed and can fluctuate based on the value of the annuity.

Should You Annuitize Your Annuity?

The answer to this question depends mainly on your circumstances, financial goals, and risk tolerance. Some people appreciate the certainty of fixed, regular payments that annuitization provides. It’s like a self-created pension that can provide peace of mind. But on the other hand, annuitizing also means giving up some control over your principal investment.

Annuitize Annuities

When to Annuitize An Annuity?

The timing for annuitization largely depends on your income needs. If you’re nearing retirement and looking for a predictable income stream, annuitizing your annuity could be bright. However, it’s a decision that should be made in consultation with a financial advisor, considering all relevant factors.

Do You Have to Annuitize An Annuity?

The answer is no; annuitization is not a requirement. You can withdraw as needed or even cash out your annuity entirely, subject to any conditions and penalties in your contract.

Can You Get Out of An Annuitized Annuity?

Getting out of an annuitized annuity can be tricky. Once an annuity is annuitized, it typically cannot be reversed without significant penalties or even a total loss of principal. This is why it’s crucial to consider all aspects before deciding to annuitize.

What Does ‘Fully Annuitized’ Mean?

When an annuity is ‘fully annuitized,’ all the funds have been converted into income payments. No more accumulation phase or lump sum exists; it’s entirely in the payout stage.

For example, if you had a $500,000 annuity and decided to annuitize it, it would be fully annuitized when all the $500,000 is used to provide your regular payments.

Should I Annuitize My Annuity

Why Should I Annuitize Annuity Payments?

Choosing to annuitize annuity payments can provide a consistent and predictable income, which can be especially valuable during retirement. You create a personal pension by converting your lump sum into regular payouts. However, the decision to annuitize should always be based on your financial situation, goals, and comfort level.

Annuitization Vs. Withdrawals

One of the big decisions you’ll face with an annuity is whether to annuitize or withdraw as needed. With annuitization, you’ll receive regular, predictable payments. On the other hand, systematic withdrawals allow you more flexibility but may expose you to market volatility and the risk of outliving your savings.

Annuitization Vs. Income Rider

An income rider is an additional feature you can add to your annuity for a fee, guaranteeing a certain income level without having to annuitize. This can provide income, similar to annuitization, but typically allows you to retain control over the principal.

Annuitization Period

The annuitization period is the length of time over which the annuitized payments are made. Depending on your contract, this could be a certain number of years or your lifetime.

Lifetime Withdrawals Vs. Annuity Income

Lifetime withdrawals refer to taking out money from your annuity as needed throughout your life. On the other hand, annuity income (particularly if you’ve annuitized) refers to the regular payments you’ll receive, providing a steady income.

Helpful Tip: Choosing a deferred annuity with a guaranteed lifetime income rider gives you the advantages of an annuitized contract while maintaining control over your savings. This option gives you lifetime retirement income, just like annuitization.

Annuitization Vs Withdrawal Distribution

Next Steps

Choosing whether to annuitize an annuity is a significant financial decision that hinges on personal factors such as income needs, risk tolerance, and financial goals. By understanding the terms and concepts surrounding annuitization, you’re taking a step toward a more secure financial future. However, it’s always wise to consult an annuity expert (like us) to help navigate these decisions and choose the path best suits your unique circumstances.

Annuitize Annuity Distribution

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Frequently Asked Questions

What does annuitize mean?

Annuitize converts a lump sum into an irrevocable income stream of payments that can last for a specific period or the rest of your life.

What is an annuitized distribution?

An annuitized distribution is a series of irrevocable payments made from an annuity based on the account balance and the annuitant’s life expectancy. The payments are made at regular intervals, typically monthly or yearly, and continue for as long as the annuitant lives.

Related Reading

  • How does interest grow in a deferred annuity when an owner stops making payments into an account?

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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