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annuity
(redirected from annuitizing)

   Also found in: Dictionary/thesaurus, Legal, Financial, Encyclopedia, Wikipedia 0.04 sec.

annuity

Contract where a lump sum is used to purchase regular income, usually made with an insurance company.

The amount of income paid depends on the annuity rates at the time the annuity is purchased. Annuity rates depend on factors such as the prevailing interest rates. The company paying the annuity retains the lump sum after the person purchasing the annuity dies, in return providing a fixed and regular payment for the duration of the purchaser's life. Annuities are a common method of paying pensions. Upon retirement an individual might purchase an annuity with a lump sum accumulated in their pension fund. The annuity may be deferred; when using an annuity for pension income this means the recipient need not convert the lump sum into an annuity immediately upon retirement, instead allowing them to wait for the most favourable market conditions.


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Annuitizing conservative assets allows them to work harder, "and then you've allowed those other less-conservative investments to grow and to build, hopefully," he said.
For instance, if a company annuitized one-third of a plan's liabilities (by annuitizing its retirees), then one-third of the deferred gain is immediately recognized as income under FAS 88.
You can avoid this dilemma by annuitizing a private pension, but since annuity-purchasers tend to live longer, insurance companies charge a steep premium for this service.
 
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