What is the accumulation period of an annuity?
The first stage of an annuity is the accumulation period, a time when you save and potentially grow the value of your annuity to prepare your retirement needs.
Annuities with accumulation periods offers these two key benefits:
1. Your contributions have time for potential growth
The accumulation period of a
Time also can help
2. You have certain tax advantages on your earnings
Choosing a deferred annuity, whether
However, those earnings are taxed like regular income when you begin withdrawing.
What is the the distribution period of an annuity?
The second phase, called the distribution period, begins when you're ready to start receiving money. One way to do that is to simply take
The key difference between accumulation and distribution is that the accumulation period is about building your annuity's value while the distribution period is about using your annuity’s value for your retirement years.
How do different types of annuities work with accumulation?
Annuities are mainly categorized in two ways based on the payout timeline (immediate vs. deferred) and the type of potential growth (fixed vs. variable).
Immediate annuitieshave no accumulation period. Payments must start within the first year. You can have a guaranteed monthly, quarterly or annual payments right away. Deferred annuitieshave an accumulation period. This can give your annuity a long period of time to potentially grow, with the advantages of compound earnings and tax deferral until withdrawal. Fixed annuitiespay a fixed guaranteed minimum interest rate for the duration of your annuity. A fixed indexed annuityis a variation that can offer the potential for growth during accumulation, with returns tied to market indexes, up to a capped percentage, and protection from loss. Another variation, a multi-year guarantee annuity (MYGA),offers a guaranteed fixed interest rate over a time period you select at the time of purchase. Variable annuitiesmay help you accumulate assets over the long term. During the accumulation period, you can choose investments based on your risk profile. Any growth from the earnings is tax-deferred. However, the annuity's value may fluctuate depending on the market—the accumulated amount may go up or down depending on your investment choices, and you can lose money. Deferred income annuitiescan provide an income to start at a set date in the future to help reduce longevity risk. You may purchase a deferred income annuity with a lump sum or series of payments, where the insurance company then guarantees annuity payments at a point in the future. Then, on the date you select at the time of purchase, when you need the income, in as little as one year or many in the future, guaranteed payments begin to help supplement your other retirement savings.
Get guidance to help achieve your retirement goals
Annuities with accumulation phases have features that are worth considering. If you're looking to diversify your portfolio and add guaranteed income options in retirement, an annuity can help protect you against running out of savings.
If you're thinking about purchasing an annuity, consider speaking with a