What are Annuities?

Annuities are a contractual financial product sold by financial institutions that is designed to accept and grow funds received from an individual and then, upon annuitization, pay out a stream of payments to the individual at a later point in time. The period of time when an annuity is being funded and before payouts begin is referred to as the accumulation phase. Once payments commence, the contract is in the annuitization phase.

Annuities can be useful retirement planning tools and often offer principal protection and even assurance that your life-span will not outlast your financial resources.

Why do people buy annuities?

People typically buy annuities to help manage their income in retirement. Annuities provide three main advantages:

✎ Periodic payments for a specific amount of time. 

✎ Death benefits. If you die before you start receiving payments, the person you name as your beneficiary receives a specific payment.

✎ Tax-deferred growth. You pay no taxes on the income and investment gains from your annuity until you withdraw the money.