When you're ready to begin receiving income from your annuity, you choose from among the following options to manage the payout of your retirement assets.

Lump-sum withdrawal
All your money may be withdrawn at once, ending the annuity contract. Lump-sum withdrawals are taxed all at once, which could move you into a higher tax bracket. Even though only earnings are taxed, your tax liability may be substantial. (See chart point  )

Make withdrawals over time
Withdraw money whenever you like or set up a regular income payment schedule. Your money continues to grow tax deferred, but there's no guarantee you won't outlive your money. (See managing your income.) You can also make new contributions to your annuity while you draw income. This option may be useful for the self-employed. (See chart point  )

Guaranteed income plans or annuitization
You can choose to convert your investment into a guaranteed income plan. This is known as annuitization. When you annuitize, new investments stop and the issuing company begins paying you a regular income based on your contract value. You may select from options such as income for life, income for a specific period, and a specific amount for each payment. (See managing your income and guaranteed income plans for a description of these options and others that may be available to you.) (See chart point  )

Your tax liability
When withdrawn, your earnings are taxed at ordinary income rates (which may be lower than your tax rate before retirement). If you choose to annuitize your contract, the portion of each payment that represents a return of your investment is not taxed. (See plan ahead for taxes.)

This chart illustrates the effect of long-term performance on the value of an annuity, using two hypothetical $50,000 tax-deferred investments over a 25-year period, one earning 8% annually and the other earning 0%. After 25 years, the investment earning 8% would grow to $342,424 before taxes, while the investment earning 0% remains at $50,000.

With a lump-sum withdrawal, an investor would receive $245,924 after taxes, assuming a 33% tax bracket. The 0% investment would still be valued at $50,000.

For an investor choosing systematic withdrawal at $5,000 per month after taxes, assuming a 28% tax rate, the contract value of the 8% investment would fund payments through the 5th year, compared to 10 months for the investment earning 0%, based on the following assumptions: Withdrawals begin after the investor has reached age 59½, and are assumed to occur at the beginning of each month. Earnings on the remaining balance of the contract continue to grow at 8% or 0%, respectively, for the entire month.

The annuitization example is based on a single life with 10-year certain for a 65-year-old man and a 28% tax rate. The contract that earned 8% during the accumulation phase would result in a monthly after-tax payment of $1,312 for life, while the contract that earned 0% would result in a monthly after-tax payment of $255 for life.

These rates of return are hypothetical, and are not intended to serve as projections of the investment results of any specific annuity. This example doesn't include the effect of charges and expenses. Had charges and expenses been included, the results would have been lower.