The Annuity: Providing a Lifetime Income

The annuity is a retirement vehicle. By its very nature, an annuity is a sum of money given to an insurance company that will provide a lifetime income sometime in the future.

When people retire, they will need to make several financial decisions. For one, what should you do with your retirement money? Some individuals roll their 401K or IRA retirement money into an annuity. While many stop at the purchase of an annuity, some will annuitize their annuity, in order to provide an income for life or a specific amount of time.

If you annuitize your annuity, the insurance company will turn your principle into a monthly, quarterly, semi-annual, or annual income, depending on your selection. Upon annuitizing the policy, most insurance companies will not allow any changes to occur. Therefore, you must live with your decision.

There are some instances when annuitization can be beneficial. A widow or widower with no kids may be more concerned about a guaranteed income during their retirement years than skimming off his or her retirement money. Some people choose a single lifetime annuitization option as a part of a pension-max program. In this scenario, a person buys enough life insurance on yourself to cover the lost of the household income due to a premature death. By doing so, you can elect the highest annuity payout without the fear of leaving your spouse broke.

There are several annuitization options found under most annuities. You may elect to have one life insured or a joint life annuity. Generally, you can choose annuitized payments guaranteed for a certain period of time. It is not uncommon to see guaranteed periods ranging from 2-10 years based on the annuitant's age. If you choose a single life annuity with no period certain, payments will cease upon your death. Likewise, on the joint and last survival life annuity, upon the death of the second spouse, your annuity payments are kept by the insurance company.

Annuitizing an annuity can be a useful retirement option when you do not want to outlive your money. Also, it can be used in conjunction with a strategy such as a pension max plan.

*Disclaimer: Always consult a tax advisor or financial advisor when making investment decisions.