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Annuitization Meaning: What is Annuitization

Stan Haithcock
October 6, 2022
Annuitization Meaning: What is Annuitization


So glad you joined me to talk about annuitization across the nation.

So let's talk about annuitization. What is that? Annuitization is the creation of payments. Think of annuitization as you're a young boy in North Carolina, me, not young anymore. And you go to the water faucet, or as my CEO makes fun of me, the water spicket, for all you Southerners out there, and you rip the knob off the water faucet. What happens? Water's flowing. Annuitization is ripping the knob off of income for a lifetime income. Income's going to flow. Income will hit your bank account every month if you set up a monthly payment as long as you are breathing. That's annuitization for a lifetime income.

Now you can do annuitization for a specific period of time. Say, "You know what, Stan? I don't think I'm going to live for 20 more years. Let's do a 20-year certain." And it's going to pay 20 years. If you live eight years, it will pay your beneficiaries for the additional 12. If you live 15 years, someone's going to get additional five years when you die. If you live 22 years, you're not going to get any payments. It will stop at year 20 because it's a 20-year certain. Not many people buy period certain anymore. Most people buy lifetime income streams.

How Long Does It Last?

"How long does a lifetime income stream last with annuitization, Stan The Annuity Man?" Good question. The answer is life. So I don't know the ROI until you die. It's going to pay you for the rest of your life. So you hope that the annuity company is wrong. They've projected you to live to a certain age. Let's just say it's 85 or 86. And you're saying, "You know what? I'll take that bet. I think I'm going to live longer than that. And if I do live, Mr. Annuity Company, you're on the hook to pay as long as I live." So if you buy and live to 115, the annuity company is on the hook to pay.

Many say, "Well, you know, my spouse and I will get this joint lifetime income annuity, but we've worked hard for this money. What if we die in year five? What happens?" We can structure it so that 100% of any unused money goes to the beneficiaries, and the evil annuity company doesn't keep a penny even though they're on the hook to pay for the rest of your life. Now, understand that annuitization, the income portion of that is a combination of return of principal plus interest. You say, "Well, wait a minute. Getting my money back plus interest?" Yes, that's annuitization. And by the way, that's any lifetime income stream using any type of annuity that provides that lifetime income stream. It's a combination of return of principal plus interest.

Now, if you’re asking, "Why would I do that?" Well, when the account's at zero and I have thousands of clients that their account's at zero, they've annuitized the money, they're getting the lifetime income stream, the account has been drawn down to zero, meaning they've outlived their life expectancy and the annuity company's still paying. With annuities, lifetime income stream annuities, they're on the hook to pay regardless of how long you live. So annuitization, the downside is you're losing control over the asset. You're transferring the risk, but it's annuitized. There's no liquidity, et cetera. That would be the downside. The upside is that the annuity company's on the hook to pay for the rest of your life.

The Downside

Let’s go back to the downside because we have to discuss that. Losing control over the money means that when we talk, we have to ensure that what you're putting into the annuitization part of your portfolio is not too much. You still have cash, other investments, and other assets, but this is part of your overall income. What is the income floor? The income floor is that money that's hitting your bank account every single month without fail. It doesn’t matter who's in office. Republican, Democrat, Libertarian, Communist, Socialist, doesn't matter. Money's hitting your bank account.

Social Security

Social security, your other annuity you own, is the best inflation annuity on the planet. Dividend income if you have rental income, and then you have this annuitization type annuity that's providing the lifetime income stream. That's your income floor. Is annuitization bad? It can be if you put too much of your money in, and that shouldn't happen. But the negative part about annuitization is if you put too much money in, that will never happen. The positive part is that a guaranteed lifetime income stream will be around as long as you breathe.

So don't be afraid of locking up your money with annuitization. Can you time it? Can you say, "Well, rates are low right now, Stan, The Annuity Man? Why would I buy?" You can't time it. Remember, lifetime income annuitization quotes are primarily based on your life expectancy, or life expectancies if it's joint, at the time you start the payments. Interest rates play a secondary role. Repeat it; interest rates play a secondary role.

Client Example

I got an email the other day. "Well, I'm not sure about buying it at these current rates." And I'm like, "Current rates? What are you talking about? Your life expectancy?" The guy was 83. I'm like, "Why are you going to time it? You're 83. That's crazy. This is not an investment." Annuitization is not an investment decision. It's a transfer of risk lifetime income decision. You either want to transfer the risk for lifetime income or don't. There's no sweet spot of when to buy an immediate annuity. All you can do is transfer the risk to that annuity company.

So would you annuitize the current annuity that you own? Good question. Let's say you own a variable annuity, a Multi-Year Guaranteed Annuity, or a Fixed Index Annuity. All of those fall under the category of deferred annuities. You're deferring it. But all three of those you can annuitize. You can convert it from a variable annuity to a lifetime income stream, from an index annuity to a lifetime income stream, from a Multi-Year Guaranteed Annuity, Fixed Rate Annuity to a lifetime income stream. We can help you with that carrier and say, "Okay, I know they own this index annuity, but now they want a lifetime income stream. Can you, the carrier, please provide us an annuitization quote for the money they have in that contract?"

If you have these policies and you say, "I don't know why I bought it. How can I make lemon out of lemonade?" or whatever, you're not enamored with what's happened, we can help you convert that to a lifetime income stream annuitization product, or we can take a look at what you own. And if that's past the surrender charge time period, we can have that carrier do an annuitization quote to see what that number is, and then we can quote all other carriers for their annuitization quotes. And then you can choose from the highest of those two.


Annuitization doesn't just have to be with an immediate annuity, Deferred Income Annuities, or a Qualified Longevity Annuity Contract that you're buying fresh and new. It can also happen with your current annuity or maybe even the annuity that you inherited. Those are things that you and I have to talk about. Those are specific quotes that we can help you with. And often, it's best to just stay with your current annuity carrier and take their annuitization quote, especially if it's the highest quote out there. We’ll ensure that you will see the highest contractually guaranteed quotes for annuitization if that's what you want to do.

Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.

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