Similar to Stock Shares

• Before you can understand what happens when an accumulation unit is sold, you must understand how accumulation units are determined. When you buy the annuity, you put a specific amount of money into the account, say $10,000. Assume each unit is worth $1, similar to the price per share in a stock. Your $10,000 buys 10,000 units. As interest and earnings grow, your unit price increases (or possibly decreases in variable annuities). The number of units you own remains the same throughout the contract.
  
  

Selling Units

• Selling annuity units means you are taking income. One unit represents a specific level of ownership. Therefore, when liquidating an annuity share, you are liquidating a specific value of what was contributed plus any earnings. This is not how most people take periodic liquidations in an annuity. Most people state a dollar value they want. The more periodic distributions you take, the smaller the guaranteed lifetime income is available later.
  
  

Annuitization

• An annuity guarantees an income stream; this is the purpose of an annuity. Annuitization is the election of that income stream, either for a lifetime or for a specified number of years. The income guaranteed is determined on a per-unit basis, so if the price per unit has gone up, then the income goes up. In the case of variable annuities, if the value goes down, the guaranteed income goes down. The actual income stream is determined by the contract terms.
  
  

Considerations

• When annuitizing an annuity, you have a few options. Lifetime income is probably the most noted where you are guaranteed a specific monthly or annual income for the remainder of your life, regardless of how long you live. While this prevents outliving your income, you may die shortly after annuitization with beneficiaries getting no cash inheritance. To protect a spouse, you can choose a joint life annutization. To preserve a cash distribution to beneficiaries upon your death, you can choose a period "certain" that defines how many payments will be made. If you die, the remaining payments may be taken or distributed as a lump sum.