What Are Annuities?

An annuity is a contract between you and an insurance company that requires the insurer to make payments to you, either immediately or in the future. You buy an annuity by making either a single payment or a series of payments. Similarly, your payout may come either as one lump-sum payment or as a series of payments over time.

Why Do People Buy Annuities?

People typically buy annuities to help manage their income in retirement. Annuities provide three things:

• Periodic payments for a specific amount of time. This may be for the rest of your life, or the life of your spouse or another person.

• Death benefits. If you die before you start receiving payments, the person you name as your beneficiary receives a specific payment.

• Tax-deferred growth. You pay no taxes on the income and investment gains from your annuity until you withdraw the money.