An annuity is simply a contract between you and an insurance company. You agree to pay the insurer a specified amount, either in a lump sum or through installments. The insurer then guarantees to provide you with future payments for the rest of your life or for a specified length of time. The money you invest grows on a tax-deferred basis until you start collecting payments from the insurer, usually after you reach age 59 . You can then postpone the tax bite even longer by converting the annuity's built-up value into a stream of monthly income, because only the portion of the payments that reflects growth or interest earnings will be taxed.
Annuities offer important flexibility in other areas, as well.
For example, you can opt for a lump sum when you retire rather than monthly payments. If you choose the monthly payment option, you can choose one payout schedule that allows you to collect checks for the rest of your life, or a different plan that lets you collect higher payments for a specified period of time. You can even choose how the payments you make to the insurer are invested. As a result, the size of the lump-sum payment or monthly checks you eventually collect will depend on the portfolio's performance. The information is not intended to be construed as investment advice nor is it an endorsement of any product, service, strategy, individual or organization.