An annuity is a long-term contract between you and an insurance organization to provide a guaranteed lifetime income. Unlike life insurance, annuities provide benefits during your lifetime.
Most people buy annuities to supplement their income during retirement .
Annuities offer several advantages as a vehicle for accumulating retirement funds Annuities earn a competitive interest rate, usually 1 to 2 percent above the rate offered for money market accounts or certificates of deposit. And annuities have a guaranteed minimum interest rate, assuring you of minimum growth and safety of principal. Best of all, annuities are tax-deferred. Unlike certificates of deposit, money market funds, mutual funds or bonds, the interest you earn on your annuity is not taxed until you withdraw the money. Since this usually takes place at retirement when your total income is lower, these funds may be taxed at a lower rate.