Accumulation Phase (Annuities) - Explained
What is the Accumulation Phase for Annuities?
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Table of ContentsWhat is the Accumulation Phase (Annuities)?How Does the Accumulation Phase Work?Academic Research on Accumulation Phase
What is the Accumulation Phase (Annuities)?
In annuities, an accumulation phase refers to the period when investors make deposits into annuity so as to build up the cash value of the annuity. Once the cash in the annuity plan accrues, the annuitization phase can then be activated, this is often based on schedule. Accumulation phase also refers to a period when investors saving up for retirement make plans towards building up the cash value of the retirement plan. This is often done by making frequent or periodic deposits or saving into the retirement plan. In retirement, the accumulation phase is followed by the distribution phase, while in annuity, accumulation phase is followed by the annuitization phase. Bothe periods refer to when investors are paid their accumulated funds.
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How Does the Accumulation Phase Work?
Building up cash value, saving, making monetary deposits are terms that are central to accumulation phase, accumulation cannot occur without an inverter building up the cash value of a retirement plan or annuity product through saving or making deposits. Once the accumulation phase ends, the distribution phase or annuitization phase begins, this is when investors can access the funds they have accrued in their individual plans. In mosts cases, especially people saving for retirement, accumulation phase is activated once they start work and it ends when they retire. Although, in some cases, some people start their accumulation phase even before they working life begins. Here are some key things to note about accumulation phase;
- It is a period when an individual builds up the cash value of a retirement package or annuity plan.
- Accumulation phase often coincides with when people begin their work life.
- In annuity, the money saved up is given to the investor in the annuitization phase.
- Money deposited or saved in a retirement package are also dispersed once the individual retires or at the end of their working life. This is called the distribution phase.
- How lengthy an accumulation phase will be is determined by the investor and based on the type of package selected.
The significance of accumulation phase to individuals and investors cannot be over emphasized. People who effectively build up their cash value during accumulation phase enjoy a better life later. Financial experts are of the opinion that people start accumulation phase early enough, individuals can begin saving in their 20s. The financial difference between a person that starts saving in his 20s and someone that starts in his 30s will be huge. According to these experts, the earlier an accumulation phase begins, the better.