What Exactly Are Annuities? 
An annuity is a systematic method of accumulation and liquidation of money that you desire to set aside for a later retirement . In the accumulation phase you mostly make deposits into your account . In the liquidation phase , you can take money from the account to provide a steady monthly income for a period of years , and even for the balance of your life . Annuities pay interest like a savings account . Unlike a bank savings account , you do n't pay income tax on the interest gained until you begin liquidating your account with either a stream of payments of lump withdrawals . When interest you earn is not taxed today , it has a chance to compound and grow faster . The government will get to tax your gain at a later time , when you start taking out the money . Some annuities can be deducted from income on your 1040 tax statement and this also helps your retirement funds grow faster . These types of annuities are referred to as `` qualified annuities '' because the annuity meets the tax law qualifications that permit taking a reduction of income for the annuity deposit . While there are lots of rules , if you go back to the start and realize that an annuity is nothing more than a method of accumulating money for retirement , and also a method of distributing money from the account in retirement , you get most of what an annuity really is . Good luck . 