The Skinny on Annuity Withdrawal Options
/Once you’re 59½, you’re allowed to turn on the spicket to start receiving money from your annuity without a penalty. If your annuity is in the form of an IRA, by the time you’re 70½, you will have to withdraw enough to meet the Required Minimum Distribution amount. There are two ways to set up withdrawals from an annuity.
1) When you request a withdrawal, the insurance company will cut you a check for the amount you want. You can request automatic deposits into your bank account on a monthly, quarterly, annually, or even an ad-hoc lump sum basis. It can be re-adjusted as time goes by to fit your current income needs. At your death, your beneficiaries will inherit the remaining value of your annuity.
2) When you request annuitization, you can choose which type of annuitization option fits best with your retirement. Once you make the choice to ‘annuitize’ it is final. There is no going back. Here are the three basic annuitization options:
Pure annuitization: This means you sign a contract and the insurance company agrees to pay you a monthly income for the rest of your life. You can add your spouse as a co-annuitant (your monthly income will be reduced to a degree) and the income will remain in force until the second person dies. Once both pass away, the income stops and there is no remaining value in the annuity.
Period certain annuitization: For this option, when the contract is signed, the insurance company agrees to pay you a monthly income for a specific period of time. For example, if you are 65 and choose the 15-year period certain option, you will receive monthly income until you are 80. If you pass away before 80, the income goes to your beneficiaries on a monthly basis. After the 15-year period, the income stops.
Life annuity with period-certain annuitization: This annuitization option is the same as period certain, except you will have monthly income for the rest of your life. For example, if you had chosen the 10-year period certain option, and then you pass away in year five, your beneficiaries will receive your income for the remaining five years. After that, the income stops and there is no remaining value in the annuity. But, as long as you’re alive, you will receive a monthly income.
