The term "accumulation period" is used to describe the time-frame during which an investor attempts to raise money for a long-term savings goal such as retirement. Typically, an accumulation period lasts for the duration of an individual's working life regardless of whether that individual actively saves funds throughout their entire career. While this term can be used in conjunction with any type of investment, it is most commonly associated with insurance products known as deferred annuities.
Many working adults make regular contributions to retirement accounts or savings plans. These contributions normally end at retirement, when investors are able to make withdrawals from these accounts. Aside from making deposits during the accumulation period, investors also earn money through the interest and dividend payments that they receive on their savings. Although investors continue to earn interest even after reaching retirement age, the accumulation phase officially ends when investors stop making direct contributions to their investment accounts.
Annuities are life insurance products that provide one or more individuals with living benefits that include monthly income payments. Investors buy deferred annuities either with a one-time lump sum premium payment or with a series of periodic payments. An annuity contract begins with an accumulation period during which the contact owner's premiums are invested in mutual funds or fixed interest accounts. This phase may last for 20 years or more after which the account proceeds are annuitized or converted into a lifetime income stream.
In theory, an investment in an annuity or any other type of instrument should grow during the accumulation phase. Nevertheless, some investors actually lose money during this period because investments such as mutual funds and stocks are subject to price fluctuations and can lose value over time. If the fund's loses outpace the investor's contributions then the accumulation period will result in a net loss for the investor.
Some annuity companies attach insurance riders to annuity contracts that protect the interests of investors during the accumulation period. Typically, the annuity provider agrees to provide the contract owner with a return of premium if the contract loses value during the accumulation phase. This return of premium normally takes the form of a series of monthly payments as opposed to a lump sum payment. In other instances, annuity firms sell riders that provide the contract owner's beneficiaries with a return of premium in the event that the contract owner dies before the accumulation periods ends. Contract issuers fund this insurance by deducting rider premiums from the insurance contract over the course of the annuity term.