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Stages of Annuities

Generally, there can be two stages of an annuity’s life span:  the accumulation phase and the annuitization phase. 

Accumulation Phase (Deferred Annuities)

The vast majority of annuities sold in the US are deferred annuities1, which begin in the accumulation phase, or savings period. During this time, a deferred annuity owner makes payments to increase the value of their assets for use in retirement.

If you make withdrawals during this time, you may be charged high surrender fees, income tax and a 10% federal penalty tax if you are under age 59½. (Want to know more? Enter your email in the “Free Download” box on the right side of this page to sign up to have additional annuity content delivered to your email.)

It’s also worth noting that deferred annuity owners seldom follow through with annuitizing. 2 Instead, they seem to treat it like a normal savings or mutual fund account and take withdrawals as needed or to withdrawal as a lump sum for use elsewhere.

Annuitization Phase  (Immediate Annuities)

During the annuitization phase, the contract value is transferred to the insurance company in exchange for a stream of payments. These payments last either for life or a set number of years.

There are two paths to annuitization: the first is by buying an immediate annuity, which begins in the annuitization phase. The second is by converting your deferred annuity into an immediate annuity to begin collecting regular payments.

The decision to annuitize is generally irrevocable -- it’s a major life decision about how you fund the rest of your retirement. We recommend thoroughly researching your options before signing anything. We are available to answer your questions at 800-940-0182.

1Source: LIMRA, US Annuity Industry Sales Estimates, Q1 and Q2 2012. Accessed 09/28/2012.
2Source: LIMRA, The 2005 Individual Annuity Market, March 2006. Annuitization rates for the period 2000 – 2005.

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