Written By
Paul Tracy
Updated July 30, 2021

What Does Annuitize Mean?

To annuitize is to choose to receive a series of payments, usually from an annuity.

How Does Annuitize Work?

An annuity is a contract whereby an investor makes a lump-sum payment to an insurance company, bank, or other financial institution that in return agrees to give the investor either a higher lump-sum payment in the future or a series of guaranteed payments. The choice to receive a series of payments is called annuitizing.

If the owner of the annuity chooses to annuitize, he or she typically begins receiving payments after the surrender period expires and the investor is at least 59 1/2 years old. The surrender period is the time (usually about seven years) during which the investor must keep all or a minimum portion of the money in the account or face surrender fees equal to a percentage (usually about 10%) of the withdrawal amount.

Annuitization is usually not required; rather, investors can simply make withdrawals when they need money.

Why Does Annuitize Matter?

The size of the original investment, the contractual terms of the annuity, and interest rates determine how (and sometimes when) the investor annuitizes. For example, immediate annuities (also called single-premium immediate annuities or SPIAs) annuitize immediately (within one year of purchase). That is, the investor begins receiving payments as soon as he purchases the annuity and continues to receive them until he dies. The owner gives up all claims to his or her initial investment but does so knowing that he or she will have monthly cash flow for life (the rate of return on these annuities is therefore determined by how long the investor lives). Deferred annuities, on the other hand, annuitize at some future date.

Most annuity payments cease upon the death of the annuitant (this is what makes them different from regular life insurance policies, which generally make a payment to a beneficiary upon the death of the insured).

Ask an Expert
All of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Annuitize.
Be the first to ask a question

If you have a question about Annuitize, then please ask Paul.

Ask a question

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 2 million monthly readers.

If you have a question about Annuitize, then please ask Paul.

Ask a question Read more from Paul
Paul Tracy - profile
Ask an Expert about Annuitize

By submitting this form you agree with our Privacy Policy

Don't Know a Financial Term?
Search our library of 4,000+ terms