Glossary

Annuitization

Converting an annuity's account value into a stream of guaranteed payments for life or a set period, usually giving up access to the lump sum.

Also called: annuitizing, annuitize

Annuitization is the step where an annuity's accumulated value is turned into a series of income payments. The owner chooses a payout option — life only, life with a period certain, joint and survivor, or a fixed number of years — and the insurer calculates the payment from the account value, the annuitant's age and the interest and mortality assumptions in effect at the time.

Hypothetical example: a 70-year-old annuitizes $200,000 under a life-only option, and the insurer quotes roughly $1,300 a month for as long as she lives. Choosing a 10-year period certain or adding her spouse would lower the monthly amount, because the insurer expects to pay for longer. For a non-qualified annuity, each payment is split into a tax-free return of principal and taxable earnings by the exclusion ratio.

In most contracts annuitization is irrevocable: the lump sum is gone, and under a life-only option, payments stop at death even if it comes early. That trade — liquidity for income you cannot outlive — is the point, but it is a poor fit for money you may need for emergencies. Many owners never annuitize and instead take withdrawals or use a guaranteed lifetime withdrawal benefit rider. Payout options are compared in Single premium immediate annuities (SPIAs): how they work and the annuity payout calculator.

Last reviewed October 4, 2026

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Related terms

Annuity A contract with a life insurer that grows savings tax-deferred, turns them into guaranteed income, or both, in exchange for one or more payments. Annuitant The person whose life expectancy determines an annuity's payments; lifetime income is usually measured by that person's life. Period certain An annuity payout feature that guarantees payments for a set number of years, paying a beneficiary if the annuitant dies before that time is up. Life-only annuity An annuity that pays income for one person's lifetime and stops at death, with no refund or payments to heirs, in exchange for the highest payout. Exclusion ratio The fraction of each annuity payment treated as a tax-free return of the buyer's own money, found by dividing cost basis by expected total payments. Joint and survivor annuity An annuity that pays income for as long as either of two people lives, often at a reduced amount after the first death, such as 50% or 100%.

Related guides

Should you put an annuity in an IRA? An IRA already defers tax, so an annuity inside one adds guarantees, not tax savings. When it can make sense, what it costs, and how RMDs and QLACs work. Are annuities a good idea? The honest case for and against annuities: guaranteed income versus fees, lost liquidity and inflation. Who they suit and who should pass. Deferred income annuities (DIAs): longevity insurance explained A DIA is bought now and pays guaranteed income starting years later. How pricing, payout options and QLACs work, the risks, and who it suits and doesn't. Guaranteed lifetime withdrawal benefit riders A GLWB rider promises withdrawals for life from an annuity even if the account runs out. How the benefit base, withdrawal percentage, roll-ups and fees work. How annuities are taxed Annuity earnings grow tax-deferred and are taxed as ordinary income at payout; rules differ for qualified, non-qualified, early and inherited annuities. Life insurance payout options: lump sum, installments and annuities How beneficiaries can take a death benefit: lump sum, retained asset account, interest only, installments or lifetime income, with the tax on each.

Related annuity companies

New York Life The largest U.S. mutual life insurer, a major seller of income annuities, including participating ones that can pay dividends, through its career agents. TIAA Retirement-plan annuity giant for teachers, professors and nonprofit workers: TIAA Traditional and CREF in 403(b) plans, plus IRA annuities.

Related tools

Annuity payout calculator Estimates monthly income from an immediate annuity, paid for a fixed period or for life on average U.S. mortality, to sanity-check real quotes.