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have an annuity question?
have an annuity question?

Do all annuities have to be converted to an income stream?

The foundation of a successful retirement is usually a guaranteed income stream that will last for as long as you need it to – regardless of how long that may be. An annuity can provide the generator for that income, as these products are designed for paying out of regular cash flow to their recipient(s). But with so many annuities available in the market today, do all annuities have to be converted to an income stream?

The answer to that is, it depends.

Understanding Annuitization and How It Works

Annuitization is defined as the “process of converting an annuity investment into a series of periodic income payments. Annuities may be annuitized either for a specific period of time, such as 10 or 20 years, or for the life of the annuitant (i.e., the income recipient).”

There are usually a number of different income options to choose from. Some even allow for two recipients, such as a husband and a wife, to continue receiving income for the remainder of both of their lives.

Alternatives to Converting an Annuity into an Income Stream

There are situations where converting an annuity into an income stream may not be the best option, though. In these cases, some of the common alternatives to annuitization may include:

  • Liquidating the entire contract. Provided that your annuity is past its surrender charge period, and you are at least age 59 ½, these funds may be accessed penalty-free. (There will, however, be tax incurred on the portion of the withdrawal that is considered gain).
  • Passing the funds in the annuity on to a beneficiary after death. Many annuities today include a death benefit. This can allow you to pass the entire amount of your annuity contract to a named beneficiary (or multiple beneficiaries) upon your passing. (Unlike a life insurance policy’s death benefit, the proceeds from an annuity’s death benefit may not be income tax free to the beneficiary).
  • Using an income rider. An income rider can provide you with a guaranteed stream of income, which can often exceed the accumulated value of the contract – and it can do so without you having to actually annuitize the contract, though. In this case, then, even if you are receiving a regular income payment, you may be able to withdraw any of the balance that remains in the account.

Where Will Your Retirement Income Come From?

With the disappearance of employer-sponsored pension plans, and a shaky Social Security system, it can be difficult to determine whether or not you will have enough income in retirement.

That’s where an annuity can come in.

These flexible financial vehicles can be positioned so as to fill in a small income “gap,” or rather to provide a bulk of the income that you may need – and they can do so for as long as you need them too.

But, because there are so many “moving parts” on today’s annuities, they can be riddled with page after page of confusing “fine print.” With that in mind, it is oftentimes best to first discuss your short- and long-term financial goals with a retirement income specialist who is well-versed in annuities. That way, you can narrow down which – if any – annuity is right for you, as well as better anticipate how a particular annuity will perform over time if you purchase one.

At Annuity Gator, our main focus is on educating consumers (as well as financial professionals) on the in’s and out’s of annuities. Our annuity experts can provide you with in-depth, yet easy to follow, research about annuities in general, as well as on specific products that could be right for you.

So, if you’re ready to learn more about how to ensure a guaranteed lifetime income with an annuity, give Annuity Gator a call at (888) 440-2468, or contact us and set up a time to talk with one of our annuity specialists today.

How annuities can provide a win-win with long-term care planning

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