What Is An Annuity?

By Brent Meyer — SafeMoney.com Founder & Editor Reviewed by Licensed Financial Professionals  |  SafeMoney.com — Trusted Since 2011  |  Updated Regularly Quick Answer: An annuity is a contract between you and an insurance company designed to provide a guaranteed income stream in retirement. You make a lump-sum payment or series of payments; in return, the insurer provides regular income that can last for a set period or for the rest of your life — the only financial vehicle that offers a contractual guarantee of lifetime income. Key Takeaways An annuity is a contract with an insurance company that provides guaranteed income — a lump-sum or series of payments in exchange for regular income starting now or at a future date. Types include fixed, fixed index , variable, multi-year guarantee (MYGA) , and SPIA/immediate annuities. Unlike market-based investments, qualified annuities grow on a tax-deferred basis — funds are shielded from taxation until withdrawn. You can withdraw funds without penalty beginning at age 59½; early withdrawals trigger a 10% IRS penalty. Use our Find a Licensed Advisor tool to connect with a financial professional for personal guidance on which annuity fits your retirement plan. Today’s financial landscape is muddled. Determining the best investment options for your needs can be a hassle. Sound decision-making involves being financially educated. And for people looking at annuities , it helps to understand the basics. What is an annuity? Simply put, an annuity is a contract between you and the insurance carrier providing it. The goal of an annuity is to provide you with a steady income stream in your retirement. It can also be a means of protection – keeping your retirement money safe and intact when market-based investments take a hit. In an annuity contract, you make a lump-sum payment or a series of payments. The annuity gives you certain contractual guarantees. In exchange, you receive payments from the annuity beginning immediately or at some specific point within the future. These payments can be made at a future date or over a series of dates. In the case of a series of dates: these are paid out monthly, quarterly, or yearly. You can opt for an annuity offering payments for the rest of your life or for a set period of years in the future. With these benefits, an annuity is the only financial vehicle which offers a guaranteed lifetime income. Except for SPIA/immediate annuities, most ann