Annuity distributions are categorized in two ways: withdrawals or annuitization (guaranteed income stream). The annuity contract itself explains the annuitization payout options available to you, including when they begin, whether the amount can be fixed or variable, and how long the payouts will last.
Note: Guarantees are subject to the claims-paying ability of the issuing insurance company. Annuities are not FDIC insured.
When the money starts rolling in
Annuity payouts may begin immediately or may begin many years after you purchase an annuity. This is the difference between deferred and immediate annuities. Deferred annuities allow premium payments to grow with tax-deferred investment earnings. Later (often after retirement), the annuity proceeds are distributed as either withdrawals or annuitization payouts. Immediate annuities, on the other hand, are funded with a single, lump-sum payment. As the name implies, payouts begin within a year under an annuitization payout option. Immediate annuities are used to convert a lump sum of cash to an income stream.