Annuity Payouts: Knowing your options

An annuity payout is defined as the time when your annuity has passed through the accumulation phase and you are about to begin receiving benefits from your annuity. It is the second phase of annuity. During the phase of accumulation, you are free to add funds to your annuity contract in any way you want, like cash deposits and other methods. As your annuity accumulates, it earns on a tax-deferred basis and you are free from taxes until you make withdrawals. Usually, you can begin to withdraw funds from your annuity without penalty when you reach the age of 59 and a half.

There are many methods of receiving annuity payout, the most common of which are the systematic withdrawal schedule and the other one is annuitization method. If you opt for the annuitization method, you are guaranteed of a regular monthly income for a determined period as you signed in your contract with the insurance company.

Choosing the systematic withdrawal schedule on the other hand gives you complete control as to how you want your benefits will be distributed. The only setback is that you have no protection against outliving annuity assets.

With the annuitization method, there are many options available and the one gives out the highest annuity payout is the life option. This is because the monthly payment of the life option depends on the life of the one who purchased it. As long as the annuitant is still alive, he can continue to have an income stream for life.

The joint-life option is another method of annuitization. This gives you an option to continue the retirement income of your partner or beneficiary after your death. Period certain is another method where the value of your annuity will be paid out to you within a defined period, like from 10-20 years. If for example you choose the 15 years and you die within the first decade, you are assured that your beneficiary will receive the annuity payout from the remaining five years to your contract.

Under the systematic withdrawal schedule, you have the control of how much you want to receive each month but the setback to this is you have to shoulder the burden of life-expectancy. This means that how much you receive each month depends upon how much you have in your account.

You could also receive annuity payout in a lump sum payment. However, this is not advisable because you will be subject to pay taxes for the entire investment and your and gain from the annuity.

If you feel that you don't need regular annuity payout, you can opt to do so. What happens is in the event of your death, everything will be transferred to your beneficiary so it is best to check that you have correctly entered who your designated beneficiary is. Your annuity payout will be transferred to her or him.