An accumulation period for a deferred annuity is the span of time during which the annuity owner’s premiums increase in value. Withdrawals are limited during the accumulation period. Show
Fact Checked Annuity.org partners with outside experts to ensure we are providing accurate financial content. These reviewers are industry leaders and professional writers who regularly contribute to reputable publications such as the Wall Street Journal and The New York Times. Our expert reviewers review our articles and recommend changes to ensure we are upholding our high standards for accuracy and professionalism. Our expert reviewers hold advanced degrees and certifications and have years of experience with personal finances, retirement planning and investments. Cite Us APA Zimmermann, S. (2022, September 14). Accumulation Period. Annuity.org. Retrieved December 11, 2022, from https://www.annuity.org/annuities/accumulation-period/ MLA Zimmermann, Sheena. "Accumulation Period." Annuity.org, 14 Sep 2022, https://www.annuity.org/annuities/accumulation-period/. Chicago Zimmermann, Sheena. "Accumulation Period." Annuity.org. Last modified September 14, 2022. https://www.annuity.org/annuities/accumulation-period/. Why Trust Annuity.org Annuity.org has provided reliable, accurate financial information to consumers since 2013. We adhere to ethical journalism practices, including presenting honest, unbiased information that follows Associated Press style guidelines and reporting facts from reliable, attributed sources. Our objective is to deliver the most comprehensive explanation of annuities and financial literacy topics using plain, straightforward language. Our Partnerships, Vision and GoalsWe pride ourselves on partnering with professionals like those from Senior Market Sales (SMS) — a market leader with over 30 years of experience in the insurance industry — who offer personalized retirement solutions for consumers across the country. Our relationships with partners including SMS and Insuractive, the company’s consumer-facing branch, allow us to facilitate the sale of annuities and other retirement-oriented financial products to consumers who are looking to purchase safe and reliable solutions to fill gaps in their retirement income. We are compensated when we produce legitimate inquiries, and that compensation helps make Annuity.org an even stronger resource for our audience. We may also, at times, sell lead data to partners in our network in order to best connect consumers to the information they request. Readers are in no way obligated to use our partners’ services to access the free resources on Annuity.org. Annuity.org carefully selects partners who share a common goal of educating consumers and helping them select the most appropriate product for their unique financial and lifestyle goals. Our network of advisors will never recommend products that are not right for the consumer, nor will Annuity.org. Additionally, Annuity.org operates independently of its partners and has complete editorial control over the information we publish. Our vision is to provide users with the highest quality information possible about their financial options and empower them to make informed decisions based on their unique needs. During a deferred annuity’s accumulation period, interest accrues according to the rate and timeframe set in the contract. At the end of the accumulation period, the contract is either annuitized or cashed out for a lump sum. Immediate annuities — specifically single premium immediate annuities and deferred income annuities — are converted to a stream of payments at the time the contract is purchased, and so do not have an accumulation period. How Does the Accumulation Period for a Deferred Annuity Work?Annuities are designed for long-term income and savings, and insurance companies expect to hold the premiums for an extended period of time. They pool and invest the premiums to generate returns and cover the income benefits they pay annuitants during the payout, or distribution, phase of the contracts they have issued. Deferred annuities have an accumulation phase followed by a payout phase. During the accumulation period, the annuity earns interest and, in cases of flexible premium annuities, the annuity owner adds money in the form of additional premium payments. During this time, the value of the annuity contract grows. Annuity withdrawals are limited during the accumulation phase. During the surrender period, which can last up to 10 years, some contracts allow for free withdrawals. These are typically around 10 percent of the current value of the contract. From the point of view of the annuitant, annuities should provide guaranteed income in retirement. It would be counterproductive to withdraw money from these tax-deferred savings instruments before their value has increased. Tax-deferred compound interest adds up significantly over time, so, similar to taking money out of a 401(k), withdrawing funds from a deferred annuity will have an amplified effect on its cash value at the end of the accumulation period. For insurance companies, early withdrawals from deferred annuities affect their portfolios. Insurance companies make money by investing the pooled premiums from annuity holders and life insurance policyholders. The insurer expects to hold its customers’ premiums for a long time. When an annuity holder withdraws money during the accumulation period, the insurer’s bottom line is affected. You can withdraw funds during the accumulation period, but you may face tax penalties and surrender charges — typically a percentage of the withdrawn total. Insurance companies assess surrender charges as part of a strategy to discourage early withdrawals and offset prospective profit losses. The penalties generally decrease as the contract nears the end of the surrender period. Interested in Buying an Annuity? Learn about the different types of annuities and find out which one is right for you. Do all Annuities Have an Accumulation Period?Not all annuities have accumulation periods. Accumulation periods are specific to deferred annuities, and they end when the premiums are converted to an income stream. This conversion is referred to annuitization. Immediate annuities, also known as income annuities, don’t have an accumulation phase because they are annuitized at the time of purchase. This is true even of deferred income annuities (DIAs), which defer income payments beyond the one-year mark that is typical of immediate annuities. To clarify: a deferred income annuity is technically an immediate annuity because its premium is instantly converted to an income stream. This means that, even though the payments are delayed, there is no accumulation period for a deferred income annuity. What to Consider Before Buying an Annuity with an Accumulation PeriodAccording to the National Association of Insurance Commissioners, “Annuity contributions earn interest that can grow tax-deferred in the accumulation phase and can provide income for life in the income payment phase. These characteristics make annuities a popular choice among retirement income vehicles.” It is, however, important to consider several factors before committing to an annuity that has an accumulation period. Before you buy an annuity, assess your immediate needs and your long-term goals. Liquidity Do you have enough money to cover your expenses right now? Do you have any monetary commitments approaching soon, such as college tuition for yourself or a loved one? These long-term insurance products are not ideal for reaching short-term investment goals or immediate financial needs, and having your money tied up in an annuity can cause problems if you don’t have enough cash on hand for your daily living expenses.Opportunity cost While the annuity is in its accumulation period, you may be missing the opportunity to pursue other investments — some of which may have higher return potential. Consider your time horizon and risk tolerance before allocating your assets to these low-risk, low-return products. Consult a financial advisor to determine how a deferred annuity might fit your portfolio.Financial goals What are your current and future priorities and objectives? Perhaps you are planning for future retirement income, allowing adequate time for growth. Your actions now will affect your payout later. Whether you are saving money now or actively contributing to an annuity, tax deferral and other tax strategies are important considerations.Mapping out your savings timeline and understanding your investments’ accumulation periods can prepare you for retirement planning — and ultimately help you reach your financial objectives. Please seek the advice of a qualified professional before making financial decisions. Last Modified: September 14, 2022
What occurs during the accumulation phase of a variable annuity?During the accumulation period, the annuity earns interest and, in cases of flexible premium annuities, the annuity owner adds money in the form of additional premium payments. During this time, the value of the annuity contract grows. Annuity withdrawals are limited during the accumulation phase.
Which statements are true regarding variable annuities during the annuity phase?Which statements are true regarding variable annuities during the annuity phase? Once the separate account interest is "annuitized," the accumulation units are converted into a fixed number of annuity units.
Which of the following statements is true regarding variable annuity contracts?Which statement is TRUE regarding variable annuity contracts? The best answer is D. In a variable annuity contract, the principal amount is never guaranteed. The principal value may increase or decrease, depending on the performance of the separate account.
What is the accumulation phase of an annuity?An accumulation period (or accumulation phase) is the segment of time in which contributions to an investment are made regularly, or premiums are paid on an insurance product, such as an annuity, intended to be used for retirement purposes.
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Which statement is true about the accumulation phase and annuity phase of a variable annuity contract?
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