What an annuity is
An annuity is a contract issued by an insurance company. Depending on the type, it may be used to accumulate funds, create a stream of income or provide certain contractual guarantees. It is not the same thing as life insurance, even though both are insurance products.
Why retirees may consider annuities
- Creating a predictable income stream
- Adding guarantees to part of a retirement strategy
- Deferring taxes on earnings inside a nonqualified annuity until withdrawal
- Addressing concern about outliving assets
Different annuities work differently
Fixed, fixed indexed and variable annuities can have very different risk profiles, crediting methods, fees and guarantees. Some contracts include optional riders that add cost.
Annuities are only one part of retirement planning
Retirement income decisions should be evaluated alongside Social Security, pensions, investment accounts, cash reserves, taxes and expected spending. A product should fit the plan, not become the plan by itself.
Frequently asked questions
Are annuities investments?
Annuities are insurance contracts. Some types have market linked or investment components, but their structure, risks and guarantees differ by product.
Can I withdraw money from an annuity?
Many annuities allow withdrawals, but surrender charges, taxes, penalties or contract limits may apply.
Are annuity guarantees absolute?
Contractual guarantees depend on the claims paying ability of the issuing insurance company and the terms of the contract.