What Is an Annuity?

Annuities are financial instruments designed to provide a regular income stream, typically during retirement. The accumulation phase is the initial stage of an annuity, during which investors contribute either periodic payments or a lump sum. After the accumulation period, annuitization begins, and the annuitant begins receiving payments for either a fixed period or their lifetime.

Annuities can be structured in various ways, providing investors with flexibility. There are two main categories of annuities: immediate and deferred. Immediate annuities provide payments to the annuitant immediately after the lump sum payment, while deferred annuities accumulate funds before providing payments.

Furthermore, annuities can be structured as fixed or variable. Fixed annuities provide a fixed rate of return, while variable annuities' returns depend on the performance of underlying investment portfolios. These structures can be beneficial to investors seeking specific income needs or investment goals.

Overall, annuities are financial products that offer a guaranteed income stream to investors. The accumulation phase, annuitization, and different structures provide flexibility and choices to investors.