Annuitize Your Retirement Portfolio? Here’s What You Need to Know

Super charging your savings. A pink piggy bank strapped to a rocket launching it into the air. Money and savings concept. 3D illustration.

The appeal is hard to argue with. With an annuity you can guarantee yourself a steady, predictable stream of income throughout your retirement, just as if you still had a job.

A job where you have a regular paycheck coming in but don’t have to do any actual work. How great does that sound?

But converting your money into a guaranteed income stream isn’t something that should be done lightly. What you’re effectively doing is taking that money and using it to buy an insurance policy that will cover you for the rest of your life.

What else should you know?

What is ‘annuitizing’?

First of all, the basics. “Annuitizing” your portfolio just means you’re converting your existing deferred annuity into a guaranteed income stream. It just involves taking the money in your annuity and giving it to an insurance company in exchange for guaranteed future income. 

And it’s one-and-done. Once you make the move you’ll no longer have access to those funds in your account or withdraw them. They’re gone (in that form) and will come back to you in the form of those monthly payments when you retire.

Here’s the cool part, though: Even after the insurance company has paid back to you all of the dollars that you initially used to buy the policy you’ll still keep getting payments. It’s a gamble that the insurer is taking on your longevity, that you’ll live long enough to claim all of your money back. If you do, it’s a win-win. Not only are you still alive but you’re getting paid to be there.

Why annuitize?

All annuities are tax-deferred until you decide to start taking the money out. Like distributions from an IRA or 401(k), your withdrawals in retirement are treated as income and taxed as such. 

That’s why annuitizing can make so much sense. When you cash in your valuable annuity that you’ve been paying into for many years, you face tax on that income all at once. Not fun and will probably impact your tax bracket. Spread it out over many years however and you’ll both avoid paying all that immediate tax while also locking in that guaranteed lifetime income. 

What to look out for: Fees. 

As with everything related to insurance and annuities, the biggest variable between different providers comes down to the fees charged on your account over the years. You don’t want your hard earned cash to be frittered away on small fees over the course of years, which is why it’s so important to shop around when considering annuitizing your existing annuity.

Most people look to their existing insurer first when considering annuitizing. That makes sense and it’s a good place to start. But don’t stop there.

Your current insurer might be fine for the type of annuity you initially bought from them but that doesn’t mean they offer the best deal for what you need going forward. Sometimes the difference is in the fees, sometimes it’s in the amount of income they’ll pay out, but it’s worth knowing the options before making such a big decision. 10 Questions To Ask When Buying An Annuity


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