An annuity is an insurance contract that offers a variety of pay out options based on the premium paid into the contract. Uniquely, annuities are the only financial vehicle that can offer a guaranteed income stream for life. Fixed annuities offer tax deferred growth and protection from market volatility while providing guaranteed growth.
Annuities are used for various reasons:
- To transfer an asset into an income stream for life or for a certain period of time. This is called immediate annuity. It is often used in estate or Medicaid planning.
- To guarantee downside protection (never lose principal or earned interest due to market downturns) with guaranteed rates and equity indexed growth. This is called deferred or deferred index annuities.
- To offer income streams for life programs. Regular annuities work well for retirement planning.
- Many deferred annuities offer income riders with guarantees for retirement income.