wiseGEEK: What Is an Annuity Date?
An annuity date is the date specified in an annuity contract when periodic payments to the annuitant begin. The annuity date is specified at the time the annuity is purchased, but it isn’t a hard-and-fast date; in most cases, it can easily be changed. The process of converting an annuity to a guaranteed monthly stream of income is called annuitization. an irrevocable event triggered by achievement of the annuity date.
An annuity is a contract between the annuity’s owner and its issuer. In the United States, annuities are classified as insurance products and can be sold only by insurance companies. They are most commonly purchased by individuals as part of their retirement savings programs, but are also popular among organizations when putting together structured payment programs such as legal settlements, pension payments, and lottery winnings. An annuity which starts making monthly payments immediately upon purchase is called an immediate annuity; its annuity date is usually within a matter of days of the purchase date, just enough to permit processing.
Individuals who purchase annuities generally select a deferred annuity. whose annuity date is a number of years in the future. The money used to purchase the annuity is permitted to grow, either by a fixed rate announced annually by the insurance company, or by rates reflective of the performance of a market index, most commonly the Standard & Poors 500 (S&P 500). These equity indexed annuities, as well as the fixed annuities, generally guarantee against the loss of principal to market loss, which is advantageous for investors. Another type of annuity, called a variable annuity. offers no protection against market loss and is a very risky investment for those approaching retirement age.
In addition to their
safety, fixed and equity indexed annuities offer significant tax advantages to US purchasers. Unlike other interest-bearing products like certificates of deposit (CDs) and savings accounts, the interest earned by annuities is sheltered from federal taxation until it’s actually withdrawn by the owner or paid out to an annuitant. Most annuities have a lifetime of at least five years before the annuity date; their tax-preferred status means that interest can grow more quickly than in CDs offering the same interest rate. If a withdrawal must made before the annuity date, however, a penalty is charged; the amount of the penalty declines as the annuity ages.
When the annuity date is achieved, an annuity is automatically annuitized. Once the issuing insurance company annuitizes an annuity, it will issue monthly payments to the annuitant for a specified period of time, usually the annuitant’s lifetime. In some cases, annuity payments will continue after the annuitant’s death to a designated beneficiary ; these “period certain” payment arrangements are designed to ensure that the annuity payments at least equal the value of the principal.
Once annuitized, an annuity cannot be converted back into a lump sum of money, and the principal is no longer the annuitant’s asset. Thus, most insurance companies will contact an annuitant before the annuity date, to ensure that the conversion is still consistent with the annuitant’s desires. If they don’t need the income the annuity would provide, annuitants often roll their annuities over. The majority of annuities are passed on to beneficiaries without being annuitized. When this happens, most annuities bypass the probate process and can be turned over to beneficiaries within the amount of time necessary to validate a death certificate and process the payment.Source: m.wisegeek.com