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What is an annuitization?

By Jakob Jelling
http://www.cashbazar.com

If you have an annuity or other type of investment fund (like a Roth IRA) then annuitization refers to a different payment option that you can take besides a lump sum. While there are some advantages to taking lump sum payments, you will probably find that you are better off taking the annuitization payments instead. The reason for this is that you'll probably end up spending less money on taxes - which is definitely a good thing if you are going to get a lot of money through the lump sum payment.

If you have an annuity, then you should definitely pay attention to the timing of when you annuitize. If you're careful, then you'll be able to maximize the amount of money you get - and get it when you actually need it. However, you should be careful about deciding when to annuitize. After you do this to your annuity, then you will not be allowed to change your mind. You will not be able to withdraw any money either.

In other words, an annuitization will change the money that you put into the annuity into a set of income payments that are paid out according to the contract that you signed with the insurance company or bank (depending on what type of account you are annuitizing).

Generally, you should wait until you are almost ready to retire before you annuitize your annuity. The reason for this is that if you wait, then you'll be able to accumulate a lot of money - possibly even enough to retire on. You also do not have to annuitize right away once you get to that point. In fact, if you can afford to wait for a while after you retire, you will be able to get more money after you annuitize.

Another choice that you have if you annuitize is to decide what the length of time will be for the annuity to be paid out over. One choice is to have the annuity paid out over the length of your life. This will help you if you need more money to retire with. However, if you are worried about your spouse, then you can also choose to have the annuitization payments take place over both your life and the life of your spouse. You will end up with lower payments this way, but both you and your spouse will be protected for life.


About the author
Jakob Jelling is the founder of http://www.cashbazar.com. Visit his website for the latest on personal finance, debt elimination, budgeting, credit cards and real estate.

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