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Annuities are a means of helping to fund your retirement. An annuity is a contract with an insurance company that allows you to save for retirement; it is also a way to guarantee that you don’t live longer than your money lasts. Annuities can be a valuable part of your financial plan.
During your working years, you can use a deferred annuity to accumulate assets. The money inside the annuity grows tax deferred. That means as long as money is inside the annuity, you don’t pay any federal income taxes on the growth!1 This allows your money to grow at a faster pace than it would outside of a tax-deferred instrument. You can invest your money in a deferred annuity in a single lump sum (called a single premium) or over a period of years (called a flexible premium).
An annuity can also provide you an income stream. In essence, it's a paycheck, when you need it. Whether you use a deferred or an immediate income annuity to create an income stream depends upon how soon you want to start receiving the income payments. As their names imply, you can either begin receiving payments immediately or you may defer them.
1 Based on current federal tax laws, a 10% Federal penalty tax may apply to distributions before age 59 ½.