What Happens During an Annuity's Annuity Period

The annuity period is when you receive regular payments from your annuity contract

The annuity period is the stretch of time during which an insurance company sends you payments from your annuity. It begins on a date you choose (called the annuity start date) and continues until either you die, your co-annuitant dies, or the contract terms say it ends. During this period, you are no longer building the account value — you are drawing it down in the form of income.

The annuity period is different from the accumulation phase, which is the time before you start taking payments and your money is growing inside the contract. Once you move from accumulation into the annuity period, the insurance company calculates your payment amount based on your age, life expectancy, how much money is in the account, and the payout option you chose.

Not all annuities have an annuity period. Some annuities let you withdraw money on your own schedule without converting to regular payments. But if your contract includes an annuity period — or if you choose to start one — that period defines when and how you receive your income.

Key Takeaways

• The annuity period begins when you elect to start receiving payments and ends when the contract terms say it does, usually at your death or your co-annuitant's death.
• During the annuity period, the insurance company sends you regular payments on a schedule you selected — monthly, quarterly, annually, or another interval.
• Your payment amount is fixed at the start of the annuity period and does not change, even if market conditions or interest rates shift.
• The annuity period is separate from the accumulation phase; once it begins, you stop adding money and start receiving it instead.

When the annuity period starts and stops

You decide when the annuity period begins by choosing an annuity start date. This date can be as soon as the next month or years in the future. Many people wait until retirement to start the annuity period, but you can begin earlier if your contract allows it.

The annuity period ends based on the payout option in your contract. With a life annuity, payments continue for as long as you live, then stop at your death. With a joint and survivor annuity, payments continue as long as you or your designated co-annuitant lives. With a period certain annuity, payments continue for a set number of years (such as 10 or 20 years) regardless of whether you are alive. Some contracts combine these — for example, life with a 10-year period certain means payments continue for your life, but if you die within 10 years, your beneficiary receives the remaining payments.

Once the annuity period ends, no more payments are sent. If you chose a life annuity and you die, your heirs receive nothing further from that contract (unless you selected a period certain or a death benefit rider). This is why the payout option you choose matters — it determines not just how long you receive money, but what happens to any remaining value.

How payment amounts are set during the annuity period

The insurance company calculates your payment amount before the annuity period begins, using a formula that includes your age, gender (in most states), the account balance, current interest rates, and life expectancy tables. This amount is locked in on your annuity start date.

Once the annuity period starts, your payment stays the same for the entire period — this is called a fixed annuity payment. You receive the same dollar amount each month (or quarter, or year) no matter what happens in the markets or to interest rates. This predictability is one reason people choose annuities: you know exactly what to expect.

Some annuities offer variable payments instead, where the amount changes based on how the underlying investments perform. But even with variable payments, the structure of the annuity period remains the same — it is still a defined stretch of time during which you receive regular income according to a schedule.

The difference between annuity period and payout option

The annuity period refers to the time span during which payments are made. The payout option (or annuitization option) refers to the type of income stream you choose — life only, joint and survivor, period certain, or a combination. These are related but separate decisions.

Your payout option determines the length and structure of your annuity period. If you choose life only, your annuity period lasts your entire life. If you choose a 15-year period certain, your annuity period lasts exactly 15 years. The payout option also affects your payment amount: a life-only annuity typically pays more per month than a joint and survivor annuity, because the insurance company expects to pay for fewer years on average.

When you are deciding whether to start an annuity period, you are really deciding which payout option fits your situation — how long you want income, whether you want to protect a surviving spouse or beneficiary, and how much monthly payment you need.

What you cannot do during the annuity period

Once the annuity period begins, you cannot stop it or change the payment amount (with rare exceptions for certain riders). You cannot withdraw a lump sum instead of taking monthly payments. You cannot move the money to a different investment. The contract is in force, and the insurance company will send payments according to the terms you agreed to.

Some annuities include commutation rights, which allow you to take a lump sum equal to the present value of your remaining payments, but this is not standard and must be written into your contract. If your contract does not include this option, you are locked into the payment schedule.

This is why it is important to understand the annuity period before you start it. Once it begins, your options narrow significantly. You should be confident about the payout option, the payment amount, and the timing before you elect to annuitize.

How taxes work during the annuity period

The tax treatment of your annuity payments depends on what type of account holds the annuity and how much of each payment is a return of your own money versus earnings. With a may have access to annuity (held inside an IRA, 401(k), or similar retirement plan), the entire payment is usually taxed as ordinary income. With a non-may have access to annuity (purchased with after-tax money outside a retirement plan), only the earnings portion is taxed; your original contribution comes back tax-free.

The insurance company will send you a 1099-R form each year showing how much of your payments is taxable. If you have a non-may have access to annuity, the company uses an exclusion ratio to calculate what portion of each payment is your contribution (tax-free) and what portion is earnings (taxable). This ratio stays the same throughout the annuity period.

If you started the annuity period before age 59½ and the annuity is non-may have access to, you may owe a 10 percent early withdrawal penalty on the earnings portion of each payment. may have access to annuities have their own rules about early withdrawal penalties. Understanding the tax consequences before you start the annuity period can help you plan your overall income strategy.

Frequently Asked Questions

Can I change my mind after the annuity period starts?

In most cases, no. Once you elect to start the annuity period, the contract is in force and you receive payments according to the terms you chose. Some contracts include a free-look period (usually 10 to 30 days) that lets you cancel before the annuity period begins, but this window closes quickly. After that, your options are very limited unless your contract includes a commutation rider.

What happens to my money if I die during the annuity period?

It depends on your payout option. With a life-only annuity, payments stop and your heirs receive nothing further. With a period certain or joint and survivor option, remaining payments go to your beneficiary. Some annuities include a death benefit rider that guarantees a minimum payout to your heirs. Check your contract to see what you chose.

Does the annuity period affect my Social Security or Medicare?

Annuity payments count as income for Social Security taxation purposes if your total income exceeds certain thresholds. They may also affect Medicare premiums, which are based on your modified adjusted gross income. The impact varies by your situation, so review the tax and benefit consequences with a tax professional before starting the annuity period.

Can I take a lump sum instead of monthly payments during the annuity period?

Not unless your contract includes a commutation clause, which is uncommon. Most annuity contracts require you to take payments according to the schedule you selected. If you need access to a large amount of money, you should discuss this possibility with the insurance company or your financial professional before the annuity period begins.

Is the annuity period the same as the contract term?

No. The contract term is how long the entire annuity contract exists. The annuity period is the portion of that term during which you are receiving payments. You could own an annuity contract for 30 years but only have an annuity period of 20 years if you start payments late in the contract's life.