What Is the Accumulation Period or Phase and Why Does It Matter?
An annuity is an opportunity for you to earn income and set savings over a long-term span. During the accumulation period, you build up your annuity by paying premiums to the insurance company.
This period can last years and provide plenty of time for the overall value of the annuity to build. Your annuity also collects interest over this span which can also increase its value.
There isn’t a set amount of time for the duration of an accumulation phase — it can vary depending on your specific annuity — but the longer the phase, the greater the worth of your annuity.
After the accumulation phase is over, you will either cash out your annuity or annuitize it. This is known as the payout phase since you begin to get money back from your annuity through several payout options.
It would be best if you typically did not plan to make withdrawals during the accumulation phase because this is when you build up the value of your annuity for later use. A withdrawal would be counterproductive.
- Withdrawals will be limited
- Accumulation phases are for long-term savings and income
What Types of Annuities Does This Impact?
You will not have an accumulation phase if you have purchased an immediate annuity. In this type of annuity, your contributed money is immediately annuitized, resulting in you starting to receive payments right away.
Since your payments begin right away as you contribute money, there is no time or reason for an accumulation phase to occur. This also applies to deferred income annuities.
4 Cited Research Articles
- Rodeck, D. (2021, February 4) What is a Deferred Annuity? Retrieved from https://www.forbes.com/advisor/retirement/deferred-annuity/
- Rodeck, D. (2021, January 6). What is an Immediate Annuity? Retrieved from https://www.forbes.com/advisor/retirement/immediate-annuity/
- National Association of Insurance Commissioners. (2020, September 30) Annuities. Retrieved from https://content.naic.org/cipr_topics/topic_annuities.htm
- U.S. Securities and Exchange Commission. (n.d.). Variable Annuities. Retrieved from https://www.sec.gov/investor/pubs/sec-guide-to-variable-annuities.pdf