Simply put, an annuity is a contract between you and an insurance company. It is designed to protect and grow your money, and then provide a
stream of income during your retirement. In fact, other than pensions, annuities are the only products that provide guaranteed lifetime income.How do annuities work?. You purchase an annuity by making a payment to an insurance company.. Your annuity can grow over time.. When you're ready to start receiving retirement income, your annuity is turned into a steady stream of income payments.Annuity advantagesHere are some reasons you might want to consider purchasing an annuity. Protection and growth: You want to grow your money while protecting all or some of it from loss.. Tax-deferral: You want to take advantage of tax-deferred growth.. Retirement income: You want to turn the money you’ve saved into a regular paycheck for a specified number of years or for life.. Death benefit: You’re looking for an efficient way to leave a legacy for your loved ones.
As you consider if an annuity is right for you, it’s important to keep in mind that an annuity is:. Not ownership of shares of any individual stock, index fund or mutual fund. Not a bond or a certificate of deposit (CD). Not insured by the FDIC, like a bank CD or a checking or savings account, or by any federal government agency, or guaranteed by a bank or credit union. Annuity guarantees are backed by the financial strength of the issuing insurance company.. Not available for "instant access" like a bank account. While a portion of your money is available each year for a penalty-free withdrawal, an annuity should be used as part of your long-term retirement plan.