Let’s start with the basics. An annuity is a contract between you and your insurance company that allows your earnings to grow and compound tax-deferred. Tax deferral is a powerful benefit you can use to help accumulate wealth for your retirement or meet other long-term financial goals. The word "annuity" literally means "annual payments".
Annuities are a popular choice for investors who want to receive a steady stream of income in retirement. The income you receive from an annuity can be distributed monthly, quarterly, annually or even in a lump sum payment.
An annuity contract has two phases: an accumulation phase and a distribution phase. When you buy an annuity, the insurance company agrees to pay you an income for a specified period of time; either beginning immediately (an immediate annuity) or after an accumulation period ends (a deferred annuity).
Annuities can be a key part of your overall retirement strategy. Anyone who considers buying an annuity should do their research and consult with an annuity professional to ensure that it's an appropriate investment for someone in their situation.