An annuity is a contract with an insurance company that, in exchange for money now or over time, provides a stream of payments later, often for life. Its central appeal is solving a problem investing alone cannot: the risk of outliving your money. Its complexity and cost are why it demands scrutiny.
The distinctive thing an annuity can offer is longevity protection, income that continues no matter how long you live. For a retiree worried about running out, converting part of a nest egg into guaranteed lifetime income can provide a floor that markets cannot take away. That guarantee, backed by the insurer, is the product's core value.
Fixed annuities pay a set rate; variable annuities tie growth to investment sub-accounts; indexed annuities link returns to a market index with caps and floors. Annuities can be immediate, paying income now, or deferred, growing first. Each type trades off certainty, growth potential, and cost differently, and the differences are substantial.
Annuities can carry high fees, surrender charges that lock up your money for years, and complexity that makes them easy to sell and hard to fully understand. Some are excellent tools for the right situation; others are expensive for what they deliver. Because compensation and complexity vary so much, an annuity is a product to evaluate carefully and in the context of a full plan. This is general information, not a recommendation.
A guarantee has a price. Know what it is.
This is general information, not personalized insurance advice. Coverage terms, definitions, and availability vary by policy and provider.