Annuitization is the process of converting an annuity’s accumulated value into a stream of guaranteed income payments. Once you annuitize, the insurance company takes your lump sum and pays it back to you in regular installments, typically monthly, for a set period or for life.
How Annuitization Works
When you annuitize a fixed annuity or MYGA, you give up access to the lump sum in exchange for predictable income. The payment amount depends on your age, the account value, current interest rates, and the payout option you choose.
Common payout options include:
- Life only – payments continue for your lifetime but stop at death
- Life with period certain – payments for life, with a minimum guarantee (e.g., 10 or 20 years) paid to a beneficiary if you die early
- Joint and survivor – payments continue for the longer of two lives
- Period certain only – payments for a fixed number of years regardless of whether you survive
Should You Annuitize?
Most MYGA buyers do not annuitize. They use MYGAs for tax-deferred accumulation and then either withdraw the funds, roll into a new annuity via a 1035 exchange, or purchase a SPIA separately for income. Annuitization is irrevocable, meaning once you convert, you cannot change your mind.