What does the term "annuitization" refer to in financial planning?

Annuitization refers to the process where the owner of an annuity converts the accumulated value of the annuity into a series of periodic payments. This typically occurs after the accumulation phase, where the individual has been contributing to the annuity, either through a lump sum payment or by making regular deposits. Once the annuity enters the annuitization phase, the individual selects how they wish to receive their payments, either for the rest of their life or for a specific term, which is a key factor in financial planning as it provides predictable income during retirement or other financial needs.

This choice highlights the fundamental purpose of an annuity, which is to provide a stream of income that can help individuals meet their future financial obligations or lifestyle needs. The nature of these payments can vary based on the terms set by the contract and the selections made by the annuitant, including options like lifetime payouts or fixed periods, making it a crucial element of income planning.