Accumulation Phase: What it is, How it Works, Examples


Generally speaking, there are 2 ways to access your assets, each with its own tax implications. You can take withdrawals, which are taxed as gains first and then return of principal once gains are depleted. Or you can convert your savings into income and spread out the tax burden over the payments. A fixed annuity will yield regular, predictable payments during the collection period while a variable annuity’s payouts will be determined by the success of the investment. Variable annuities present a higher earning potential with a greater risk.

  • Take a look at the case study below to get an idea of how a fixed annuity might be beneficial for retirement planning.
  • When it comes to long-term financial planning, annuities and life insurance are two popular options to consider.
  • Today, there’s a wide range of annuities, some of which are less complex and lower in fees and have a range of features that can help you achieve specific financial goals.

Each cash flow is compounded for one additional period compared to an ordinary annuity. Multiplying the PV of an ordinary annuity with (1+i) shifts the cash flows one period back towards time zero. An individual makes rental payments of $1,200 per month and wants to know the present value of their annual rentals over a 12-month period. There are many income streams that an individual can build up during the accumulation phase, starting from when they first enter the workforce, or in some cases, sooner. You won’t lose money in a fixed annuity so long as you hold the contract to maturity and don’t withdraw early.

What Happens When an Annuity Expires?

The type of annuity you buy—and its payout plan—determines whether your loved ones receive money after you die. Others offer add-on riders for death benefits (you pay extra for them). And some annuities offer no death benefits—the payments just stop. Annuities are intended as income-generating products and not typically meant for capital appreciation. Annuities are therefore best suited for individuals who want to add retirement income later on, or who wish to convert a large lump sum into a guaranteed stream of cash flows over time.

  • Annuity contracts have suitability requirements, ensuring they are appropriate for the purchaser’s financial situation and goals.
  • And like other types of fixed-rate products, such as bonds and certificates of deposit (CDs), higher interest rates mean you can get more income than you may have in the past.
  • Overall, these plans offer a valuable solution for those planning for retirement and seeking financial security in their golden years.
  • The Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) are responsible for overseeing the regulation of annuities.
  • Annuity due situations also typically arise relating to saving for retirement or putting money aside for a specific purpose.

Fidelity makes no judgment as to the credit worthiness of the issuing institution. As you head into the 5- to 10-year homestretch before retirement, your financial plan will likely begin to change, especially as you consider shifting from saving to spending your nest egg. You may be looking for stable returns, or you may still be seeking growth potential from your savings. Under ideal circumstances, no one would ever run out of money in retirement, and they’d have enough resources to meet all their essential expenses and more.

Understanding annuities

It fell down the ratings due to customer satisfaction and small size according to our data, but otherwise its fixed annuity products are excellent. The company’s products are available in the District of Columbia and Puerto Rico, adn every state except New York. Founded in 2021, Aspida is a very new player in the annuity industry, especially since many of the top companies have been around for over a century. Despite being a new company, Aspida has the backing of long-term industry experts on its founding team. This experience comes across in its quality fixed annuity products.


You may also elect to receive annuity income benefits as a lump sum. The basic function of an annuity is to provide a steady stream of income, typically for retirement. Once an annuity expires, the contract terminates and no future payments are made.

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When paying for an expense, the beneficiary pays an annuity due payment before receiving the benefit, while the beneficiary makes ordinary due payments after the benefit has occurred. Other insurance products available at Fidelity are issued by third-party insurance companies, which are not affiliated with any Fidelity Investments company. A contract’s financial guarantees are subject to the claims-paying ability of the issuing insurance company. In addition, you have access to your account value should your circumstances change (surrender charges may apply and the guaranteed income amount will be reduced). Retirees will be more confident and comfortable spending money knowing they will always have dependable income in the future.

Formerly part of MetLife, Brighthouse Life Insurance Company is now a major annuity company with a national presence and solid financial strength ratings. Brighthouse offers regular fixed annuities as well as fixed annuities with market value adjustments (MVA) for withdrawals. While you can open a regular fixed annuity starting at $25,000, it takes at least $100,000 to open Brighthouse’s fixed rate annuity MVA.

By contrast, a variable annuity pays interest that can fluctuate based on the performance of an investment portfolio chosen by the account’s owner. While variable annuities carry some market risk and the potential to lose principal, riders and features can be added to annuity contracts—usually for an extra cost. Contract owners can benefit from upside portfolio potential while enjoying the protection of a guaranteed lifetime minimum withdrawal benefit if the portfolio drops in value.

How an Annuity Works

No matter how the insurer’s investments perform, a fixed annuity will never earn less than its guaranteed interest rate. This means you can easily predict how much income you’ll receive from your fixed annuity. Insurance companies may increase the interest rate on your traditional fixed annuity contract after a specified period, such as two years.

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