What is an annuity?

An annuity is a financial product that provides a series of payments made at equal intervals. Typically, these payments are used as a strategy for income during retirement or in other situations where a steady cash flow is desired. Annuities are generally offered by financial institutions, such as insurance companies, and can be structured in various ways to meet individual needs. There are two main phases in an annuity: the accumulation phase and the distribution phase. During the accumulation phase, the investor makes contributions to the annuity, which can grow based on either fixed interest rates or variable investment options, depending on the type of annuity chosen. Once the annuity reaches the distribution phase, the owner begins to receive regular payments, which can last for a specific number of years or for the remainder of the investor’s life. There are several types of annuities, including fixed, variable, indexed, and immediate annuities, each with their own unique features and tax implications. For anyone contemplating an annuity, it may be beneficial to explore the different options available and consider how they align with long-term financial goals. More information regarding the specific types of annuities can typically be found on the Annuity.org website.