What Percentage of a Deferred Annuity Is Annuitized?
When you own a deferred annuity, you might want to convert it to monthly payments. The monthly payments you receive are called an immediate annuity. The percentage of this annuity that is converted is annuitized. You should understand this process and how it affects you since annuitization is a common practice during retirement in order to secure retirement income.
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Process
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A deferred annuity is a long-term savings contract. It's a "savings annuity." The annuity is converted to monthly payments by purchasing an immediate annuity. This process of conversion is called "annuitization." The conversion converts your deferred annuity to monthly payments that you choose. You may choose between receiving payments for a set number of years or for life.
Benefit
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By converting your annuity to monthly payments, you get a guaranteed income from the insurance company. The amount of money that is converted is annuitized. You don't have to convert all of your savings to monthly payments, however. You can choose to convert only some of your payments. This gives you the flexibility to take some or all of your savings as retirement income. If you need an emergency savings, then you'll have it by simply converting only some of your annuity to payments.
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Disadvantage
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The disadvantage to annuitization is that you won't ever get that money back. Annuitization is a process of converting savings to payments. Because of this, the insurer keeps your savings regardless of how long you receive payments. If you need access to your savings in the future, you won't have it.
Consideration
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Before you annuitize any of your savings, carefully consider whether you really need to do this. Many annuities provide for withdrawals instead of annuitization. Unless you are primarily concerned with receiving a guaranteed income, you can access your deferred annuity through periodic or systematic withdrawals.
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