annuitization
The process of converting an annuity's accumulated value into a stream of periodic income payments, typically irrevocable once elected.
Example
“At 70, he elected annuitization, converting his $300,000 deferred annuity into $1,800 monthly payments for life.”
Memory Tip
ANNUITIZATION = turning a lump sum into guaranteed income payments. Irreversible, but secure.
Why It Matters
Annuitization is a critical decision point in retirement planning because it determines how you will receive your accumulated savings. Once you annuitize, you typically cannot reverse the decision, so choosing the right time and terms directly affects your financial security and quality of life throughout retirement.
Common Misconception
Many people believe that annuitization is the only way to use an annuity, but in reality it is optional. Some annuity owners choose to take withdrawals gradually or access their funds through other methods without fully annuitizing, maintaining more flexibility and control over their money.
In Practice
Suppose you have accumulated 500,000 dollars in an annuity by age 65. When you annuitize, you might receive 2,500 dollars per month for the rest of your life, based on current interest rates and your life expectancy. Once you make this choice, you cannot go back and withdraw that lump sum instead, so the decision requires careful consideration of your health, expenses, and other income sources.
Etymology
ANNUITY (regular payment stream) + -IZATION (process of converting to). Converting to a regular ANNUITY payment stream.
Common Misspellings
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Related Terms
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See Also
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